Kickstarter, Benefit Corporations & Charities

The last decade has seen a lot of interest in hybrid business/nonprofit organizational forms, of various kinds. In the early 2000s, an assortment of people began advocating the creation of such hybrid organizational forms, and in 2008, Vermont became the first state to create one, the “low-profit limited liability corporation” or “L3C.” The new form immediately attracted the attention of nonprofit law scholars. For example, I found Dana Brakman Reiser’s Charity Law’s Essentials (2009) an excellent early attempt to understand the emerging organizational forms in relation to existing law.

Since then, 31 states have passed legislation authorizing the creation of various kinds of “benefit corporations,” or hybrid business/nonprofit organizational forms. And more than 1000 organizations have adopted the form. The defining feature of a “benefit corporation” or “B corp” is that its corporate purposes include providing a social benefit of some kind. 

Some scholars and commentators have argued that B corps and other hybrid forms are pointless, because business corporations can also make providing a social benefit part of their social purpose. But the demand for the B corp form suggests that they are mistaken. Perhaps the B corp form is seen as providing more certainty that the organization will maintain its focus on providing a social benefit. In any case, I could not help noticing that the B corp form seems to revive many of the values expressed by the post-war managerialist theory of corporation law, which is now largely forgotten.

Today, corporation law scholars typically assume that shareholder wealth maximization is the primary purpose of a corporation, but managerialist theory held that corporate purposes could include a wide range of values. On this point, I recommend Harwell Wells’s article ‘Corporation Law is Dead’: Heroic Managerialism, the Cold War, and the Puzzle of Corporation Law at the Height of the American Century. While some of the corporatist values have been revived by corporate social responsibility theories, the structural arguments implicit in the B corp movement are unique.

In any case, I can’t help but wonder whether the demand for the B corp form suggests that the managerialist theory had a point. Perhaps some people creating and investing in corporations believe that incorporating social benefits into the mission of the corporation is a valuable option. Or to put it another way, perhaps some entrepreneurs and investors want the option to choose to be a little bit charitable.

So, I was pleasantly surprised to learn that Kickstarter just became a benefit corporation. I personally found this interesting because I have previously written about the curious way in which Kickstarter looks like both a business and a charity. But I was surprised by the decision, because in the past Kickstarter’s founders have been so adamant that Kickstarter is not about charity, but entrepreneurialism. As I have observed, charity and entrepreneurialism are complements, not opposites. Perhaps this new move reflects a recognition that Kickstarter is all about enabling people to be more altruistic, and that crowdfunding is important because it has enables altruism by lowering transaction costs on giving.

Brian L. Frye