The Issue
Benefit corporations are a type of hybrid organization that was first legally established in 2010, and are now available as a corporate form in California, Hawaii, Louisiana (effective 8/1/2012) Maryland, New Jersey, New York, South Carolina, Vermont, and Virginia. These laws allow for-profit entities to provide a “general public benefit” to consider the interests of stakeholders (e.g., employees and communities), their environmental impact, and other social factors in making business decisions, without facing the risk of lawsuits by investors and shareholders who might perceive those decisions as detrimental to their financial interests. Four other states (Colorado, Michigan, North Carolina, and Pennsylvania) are considering similar legislation.

IS Position
The Independent Sector board of directors has adopted the following position on hybrid organizations:

Independent Sector opposes extending the privileges of tax-exemption or tax-deductible contributions to hybrid organizations, which by definition have as one of their purposes the creation and distribution of profits to shareholders/owners. Further, Independent Sector opposes the recognition of hybrid corporations as a separate category of entity (i.e., neither for-profit, nor nonprofit) in federal tax law at this time. The need for such a category has not been demonstrated, and creating a hybrid organizational category will increase the complexity of the tax law, further confuse the public about the public purposes of hybrids vis-à-vis nonprofits, could hinder transparency and accountability, could be used to divert charitable assets to private gain, and could result in decreased charitable contributions to the nonprofit sector.

Background
California
On October 9, 2011, California became the sixth state to pass legislation allowing benefit corporations. The San Francisco Board of Supervisors President David Chiu proposed legislation on January 31, 2012 that would provide bid preferences to benefit corporations contracting with the city. The legislation, approved on April 17, 2012, gives the final ratings of benefit corporations a 4 percent cost leeway compared to other applicants.

At a recent hearing that discussed benefit corporations and California's nonprofit sector, the CEO of the California Association of Nonprofits (CAN), Jan Masaoka discussed the importance of oversight and monitoring of the new corporate forms. Read more.