INVESTORS’ CORNER: How to incorporate your real estate business for social “benefit”

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Benefit Corporations are for-profit companies specifically designed for philanthropy.   Becoming a “Benefit Corporation” means being certified by the nonprofit organization “B Lab” to meet rigorous standards in specific areas such as civil, social, and ecological.

Benefit Corporations and North Carolina. Currently, Benefit Corporations cannot be formed in North Carolina since legislation has not been passed permitting this type of business entity. Therefore, incorporating under this legal structure is not a possibility for interested companies. However, options still exist!

B Corporation. A company can acquire B Corporation certification in North Carolina. This is a process that not only allows companies in states without Benefit Corporation legislation to mirror their desires for fiduciary and environmental responsibility, but also maintain a for-profit structure. A B corporation allows owners to measure and evaluate social and environmental impact against a comprehensive third party standard maintained and instituted by B Lab. B Lab is a non-profit organization that serves a global movement of people using business for good works. B Lab keeps businesses turned B corps accountable and helps maintain each certified B corps’ social or environmental mission.

Legal Requirements. For existing companies in North Carolina, the first step is to determine whether the company will need to convert the type of entity or amend the governing documents (e.g. Operating Agreement or Bylaws) or to meet the legal requirements for certification. The second step is to engage key board members, legal counsel, and investors (if any) about the usefulness and implications. For new companies, the first step is to determine the appropriate choice of entity and then to draft the governing documents to reflect the needs of the B Corporation.

After certification as a B Corporation, C Corporations must obtain board approval of the planned amendment and obtain shareholder approval of the board approved amendment. The legal requirement gives legal protection to directors and officers to consider the interests of all stakeholders, not just shareholders, when making decisions as well as holding directors and officers accountable to the newly created social and environmental interests.

The majority of real estate investors utilize LLCs. Therefore, there won’t be a board from which approval is necessary. Since LLCs require less corporate formalities, converting to a B Corporation will require amending the operating agreement. Or, if no such operating agreement exists, converting to a B Corporation will require an appropriately drafted operating agreement.

Every client is unique in principle and objective. As counsel, my job is to customize the appropriate medium through which my clients operate. Addressing the social needs of my clients is as important as any other.

Attorney Craig Morgan is a member of Metrolina Real Estate Investors Association, www.MetrolinaREIA.com, which provides education, networking, and mentoring to investors in the Greater Charlotte area. He can be reached at [email protected], (www.providencelawcarolina.com).