Note: Knowledge Is Power: How Implementing Affirmative Disclosures Under the JOBS Act Could Promote and Protect Benefit Corporations and Their Investors
By Laura A. Farley. Full text here.
Benefit corporations are a new type of business entity that combine the notions of for-profit finances with the public and mission-based goals of non-profits, thus creating a unique business model that is just now gaining traction. Despite its popularity, the benefit corporation entity often faces financial difficulty because of its structure. This structure lacks precedent to set expectations for a shareholder’s potential return on investment or the feasibility of enforcing a shareholder’s rights. Nevertheless, the Jumpstart Our Business Startups Act (the JOBS Act, or the Act) will fuel the growth and success of the benefit corporation through new funding platforms: equity crowdfunding and advertising and solicitation platforms. These new funding options, which are directed at all small businesses, will be of great assistance to many benefit corporations facing financial difficulties. The flaw in the JOBS Act for the benefit corporation, however, is a lack of adequate affirmative disclosure requirements. Potential investors could be at a serious risk if they unknowingly invest in a benefit corporation believing it to be a traditional corporation with a profit-only focus. Thus, the benefit corporation as an entity could have its reputation and popularity seriously undermined if such issues arise in the utilization of these JOBS Act funding platforms. Without precautions to protect and educate investors, the success of the benefit corporation could be considerably hindered. This Note suggests that greater regulatory safeguards should be implemented to protect the future of the benefit corporation entity and its potential investors.