Mission Anchoring

Two Approaches to Anchor a
For-Profit’s Social Mission

As you read the content and view the videos, we encourage you to take notes on the pros and cons of each approach on the For-Profit Hybrids Mission Anchoring worksheet.

Approach #1: Choose an Innovative Corporate Form

New corporate forms designed to enable the pursuit of both mission and purpose (sometimes referred to as hybrid statutes) now exist as a tool for entrepreneurs and their counsel, such as L3Cs, Social Purpose Corporations and Benefit Corporations.

	Goal	Concerns	Mission Anchor is Legally binding?	Used for B Corp certification?	Relevance for SEs
L3Cs .............................	Meant to provide greater ease for securing program related investments, by pre-clearing the charitable purpose.	Not useful for entities that might seek institutional capital investment. (See discussion on pass-through entities.)	Yes, but subject to amendment.	Possibly	High relevance, particularly for subsidiaries of exempt organizations (i.e., nonprofits)
Social Purpose Corporations .............................	Permit express statement of a social purpose in the Articles/Certificate of Incorporation (particularly in California where otherwise not permitted). Available in Washington and California, with several other states adopting benefit corporations that look more like social purpose corporations.	No minimum mandatory threshold of social impact behavior required by statute.	Yes, to the extent of the stated purpose or purposes in the Articles/Certificate, but subject to amendment.	Possibly, depending upon the stated social purpose and the binding nature upon the Board, as stated in the Articles/Certificate. (Entrepreneurs should be aware of B Lab’s movement towards only certifying benefit corporations.)	High relevance
Benefit Corporations .............................	Requires adherence to an express social purpose, and permits express statement of additional social purposes in the Articles/Certificate. Available in different forms in a majority of states. Delaware’s version is known as the public benefit corporation.	Includes a minimum mandatory threshold of social impact behavior: the Company must have a material positive impact on the environment and society, taken as a whole, as measured by an independent third party standard. Most states also include a private right of action by shareholders for failure to meet this standard. Slow adoption by investors (particularly institutional funders).	Yes, but subject to amendment.	Yes	High relevance, particularly for companies seeking certification as B Corporations, given the sponsorship of these statutes by B Lab.

Be Mindful of the State Level Regulatory Environment

Before you decide in which state to incorporate, it’s important to understand that different things are permissible in different states. Some states have adopted constituency statutes to complement corporate law. These statutes allow the board to define their duty of care mandates, to whom their duty of care extends, and in what proportions they must consider differing interests when making decisions, particularly when evaluating a takeover offer, whether hostile or friendly.

	Goal	Concerns	Mission Anchor is Legally binding?	Used for B Corp certification?	Relevance for SEs
Constituency Statutes ............................	Expands Board responsibilities beyond the company and its stockholders to include other stakeholders (as detailed in the statute)	Exists in 31 states (but not CA or DE), none of which include the environment in the list of “stakeholders.” No statutory interpretation. Highly disfavored by traditional investors.	No. All statutes make the consideration of various stakeholders optional at the discretion of the Board.	Possibly, depending upon the stated social purpose and the binding nature upon the Board, as stated in the Articles/Certificate. (Entrepreneurs should be aware of B Lab’s movement towards only certifying benefit corporations.)	High relevance, but creates friction for traditional investors.

Approach #2: Supplement your Traditional Corporate Structure with Mission Anchoring Design Features

Another approach employs creative design features to adjust the traditional corporate structure. These might include utilizing super-voting stock, “best interests” clauses, rules of corporate citizenship, and founders’ preferred stock.

	Goal	Concerns	Mission Anchor is Legally binding?	Used for B Corp certification?	Relevance for SEs
Super-voting Stock ......................	Founder retains majority voting control, even after economic power is diluted below 50%	Overbroad solution, raising investor fears of “rogue founder.” Highly disfavored by traditional investors.	Yes	Possibly	High relevance, but creates friction for traditional investors.
“Best interests” Clauses ......................	Include constituencies in company’s charter document	No clarity on how courts would interpret such provisions; DE and CA may rule unenforceable. However, if included before investment, provides a basis for arguing social contract theory for binding nature of provisions. Might be resisted by investors	Unclear, but potentially.	Probably useful in making consideration of stakeholders mandatory, even in states with elective statutes	Medium relevance, often used with other features such as founders’ preferred stock.
Rules of Corporate Citizenship ......................	Include provisions in Bylaws relating to corporate behavior in areas such as philanthropic giving, living wage, income disparity, environmental stewardship, etc.	No clarity on how courts would interpret such provisions, But if included before investment, provides basis for arguing social contract theory for binding nature of provisions. Might be resisted by investors.	Until repealed by a Board, they are likely binding on the Board. Use of founders’ preferred stock to anchor makes for a potentially stronger argument.	Probably useful in providing the Board with a standard for considering such topics.	Medium relevance. Sometimes used, often with other features such as “best interests” clauses and founders’ preferred stock.
Founders’ Preferred stock .......................	Provides a special class of stock to preserve the mission, for mission anchoring, B Corporation certification and for branding authenticity, in addition to its original purpose of providing a liquidity vehicle for founders.	Negative control features (in the form of protective provisions tied to the founders’ preferred in the Articles/Certificate) might be resisted by investors, but often more acceptable than other design features or hybrid statutory forms.	Yes	Yes	High relevance. Can also anchor the Rules of Corporate Citizenship in the Bylaws and the “Best Interests” clause in the Articles/Certificate/Certificate, among other things.