The chief difference between a non-profit corporation and a benefit corporation— sometimes called a B Corporation—is the ownership factor. There are no owners or shareholders in a non-profit company. A benefit corporation, however, does have shareholders who own the company.
A traditional non-profit—or not-for-profit—company aims to serve a public benefit without making a profit, as defined by the IRS. If a non-profit company decides to stop doing business and dissolve, it must distribute its assets among other non-profits. The non-profit company isn’t really owned by anyone because there aren’t any shareholders.
However, a benefit corporation (called a public benefit corporation in Delaware) is a specific type of Delaware General Corporation—it is owned by shareholders who expect the company to make a profit, and return some of that money to them as dividends.
The Certificate of Incorporation of a benefit corporation commits the company to spending some of its profits or resources (or both) in support of a specific public benefit. If a benefit corporation decides to stop doing business and dissolves, the shareholders receive the proceeds of the sales of assets, after liabilities are paid. The shareholders of a benefit corporation actually own the company as well as its assets.
There are other significant differences between the two entities. Personal gain is prohibited in a non-profit corporation, except as the benefits of membership imply; in fact, the express purpose of a non-profit corporation’s existence is to serve a public benefit without making a profit.
In a benefit corporation, however, profit is the point—as is returning money to the shareholders.
However, a benefit corporation also possesses a greater specific purpose and a desire for the corporation to help make the world a better place.
The difference is that these generous companies contribute charitable donations voluntarily, and their financial commitment can change from year to year, whereas with a benefit corporation, the company is committed to dedicating resources, funds or both toward its chosen public benefit, and shareholders cannot extinguish or water-down the commitment from year to year.
Creating a non-profit corporation is a two-step process. First, the organization should form a Delaware Non-Stock company.
When preparing your Certificate of Incorporation, you must create a mission statement acceptable to the IRS. It should state the altruistic purpose to which the corporation is dedicated.
For example, a non-profit can pledge to benefit one specific group of people; fund research for a particular disease; build a public dog park; or support a religious, charitable, scientific, public safety, artistic, literary or educational institution or mission.
The second step to forming a non-profit corporation is to submit the proper application to the IRS—within 15 months of entity formation—to request non-profit status.
This is accomplished by submitting IRS Form 1023.
In order to qualify for non-profit status with the IRS, your Delaware Certificate of Incorporation must include a proper and appropriate mission statement that declares your mission and identifies the IRS subsection under which you intend to apply.
A non-profit company must devote all its resources to the fulfillment of its mission.
To form a public benefit corporation, file a Certificate of Incorporation in the state of Delaware for a General Corporation with a public benefit clause in it. No subsequent filing with the IRS is necessary.
The Certificate of Incorporation of a Delaware Public Benefit Corporation must clearly state that the entity is a public benefit corporation, and it must also list the company’s benevolent objectives.
However, unlike the non-profit company, the PBC may be first and foremost engaged in a profitable enterprise of a very different nature from its mission, such as making food products, engaging in real estate investments or any other for-profit enterprise.
For example, when the crowdfunding platform Kickstarter converted to a Public Benefit Corporation, it released this statement on its website:
“When we became a Benefit Corporation, we amended our corporate charter to lay out specific goals and commitments to arts and culture, making our values core to our operations, fighting inequality, and helping creative projects come to life.”
Non-profit companies raise money through donations and fundraising activities.
If approved by the IRS as a 501c company, the individual donors may deduct their contributions from their ordinary income on their federal tax returns, but they cannot profit from or receive anything of value for their contributions.
Delaware public benefit corporations can raise money by selling stock privately or publically, and by issuing any kind of debt instrument available to General Corporations.
Investors in Delaware PBCs can receive stock and make a return on their investments through dividends as well as through equity appreciation.
Reporting on Progress
Non-profit companies are not required to report progress to their members but they often do so in order to raise money from donors and members.
Delaware Public Benefit Corporations are obligated to complete a biennial report to shareholders, which outlines the corporation’s progress toward its public benefit purpose.
However, they are not compelled to share the required biennial report publicly. Not every state offers a Benefit Company, and none are as private as Delaware’s (in this respect).
Federal Taxation Differences
A non-profit company is tax exempt under Federal Income Tax Law. Since it has no profit, it pays no taxes. It is required to file a tax form each year (IRS Form 990), which is public record and includes information about the company’s finances and Board of Directors.
By contrast, a benefit corporation pays taxes on its profits, like any other U.S. corporation. It files and pays taxes to the IRS each year using Form 1120. The company’s previously filed tax returns are protected under federal privacy laws.
Delaware Franchise Tax Differences
A non-profit company pays only $25 annually in Delaware, and files an annual report; this report is an informational form that lists the names and addresses of the Board of Directors and officers but does not include any financial information.
A Delaware PBC is a Delaware corporation, which means it must pay annual Franchise Tax to the state of Delaware based on the number of shares it issues.
Non-profit corporations are, structurally, non-stock corporations, which means non-profit corporations do not have any shareholders.
They are managed by a Board of Directors, sometimes called a Board of Trustees. The Board may elect its own successors (called a perpetual Board) or they may be elected by the members, depending on the structure outlined in the corporate bylaws.
There can be different classes of members in a non-profit corporation, including voting and non-voting members.
The types of members, as well as the qualifications for membership, are also defined in the corporation’s bylaws. Members and Directors are not shareholders, and thus do not have any interest in the company’s assets or income.
Delaware benefit companies are simply Delaware General Corporations with a charter commitment to dedicate themselves to a stated public benefit, thus they are structured according to the Delaware General Corporation Law (DGCL).
They have three tiers of power: the shareholders, the directors and the officers. The shareholders own the company and are the investors.
They elect the members of the Board of Directors at an annual meeting, and the directors are then responsible for the policy and direction of the company as well as for hiring the officers.
The officers (President, Vice President, Secretary and Treasurer and optionally any other titles the Board of Directors dictates, such CEO, CFO, COO) are charged with handling the day-to-day business of the company. Absent a contract, the officers work at the pleasure of the Board of Directors.
Another difference between non-profit corporations and benefit corporations is that the stock certificates of the latter must be clearly marked with the words “Benefit Corporation.” A non-profit company has no shareholders and therefore no stock certificates.
Some examples of successful non-profit corporations are:
On a smaller, more local level, home owners associations and little leagues can also be non-profit organizations.
Examples of successful benefit corporations (in addition to Kickstarter) are:
Disclaimer: The above is meant as an introduction to some of the major differences between a 5015c non-profit corporation and a Delaware public benefit corporation. Be sure to consult your lawyer and accountant for details which may specifically address your situation.