Tuesday, September 22, 2015

Current Events: Kickstarter Has Reformed Itself As A Benefit Corporation

.....Is "Benefit Corporation" a real thing?

I don't know about you, but that was my first reaction. Corporate law isn't exactly my professional wheelhouse, but I had to take the course just like every other 2L in the country. I don't remember a thing about benefit corporations. I learned a few things in law school: (1) that corporate law is only concerned with structures and taxation, and (2) the legal system is really poorly equipped to deal with questions of morality unless it's in the context of punishment. Everything I'm sure of tells me that benefit corporations cannot possibly be a thing.

And that just goes to show how much I know, because right after a thread on reddit brought the Kickstarter to my attention I started Googling. Sure enough, they are totally real, but the fact that I didn't learn about them during my law school years is justified by the fact that they didn't exist back then. That doesn't change the fact that I think their very existence is weird, though. As for Kickstarter's take on what being a benefit corporation means, they list such goals as increased transparency, not using the crazy loopholes in US tax law that allows corporations to pay nothing in taxes, donating a portion of their profits to various nice causes like childhood arts education among others, and keeping their CEO pay in check. That sounds nice. I mean...companies that aren't specifically incorporated as benefit corporations can do all this stuff too, but this is certainly not doing any harm. Seriously, I'm kind of an alarmist about law being used for stuff it's not super good at, but I really don't see any harm in it. 
But there has to be harm, right?

Just like how this adorable Pomeranian is clearly plotting something in that sunny field of tulips.
I'm onto your games, you fluffy little fiend! (source)
Has to be. So I went digging through a few states' statutes about these cuddly new corporate entities and found that they're pretty much the same between across the country (can't promise that, though; I didn't look at all 28 states that let you incorporate as one of these things). The results of my search are...still pretty benign, if not especially meaningful. One of the only states where technology companies are going to incorporate is California, so I'm going to look specifically at the legislative language there. Get ready to not be blown away:

14610. (a) A benefit corporation shall have the purpose of creatinggeneral public benefit. (source)

Let me lawyer all over these good intentions. The definition of "benefit" is not spelled out anywhere in the definitions section at the beginning of the statute. As such, the phrase "general public benefit" is basically legally meaningless. Common sense may tell you what that means, but if the world were that simple, my sweet summer children, a former President of the United States would not have told the media "It depends on what the meaning of the word 'is' is." How warped does being a lawyer make you? I understand that sentence. THAT's how warped.

Damnit, man, you didn't have to crystallize everything wrong with lawyers in
one sentence like that! Spread it out!

So you give me the phrase "general public benefit" and I want to know: what's the minimum number of people who would be "the general public?"; what metric do you use to measure "benefit?" ; can you only create benefit through disbursement of money?

Now let's take it down to specific hypotheticals: If a movie or tv production company takes all of the leftovers from their craft services tables to the local soup kitchen after they wrap for the day? Would that be enough for them to reincorporate as a benefit corporation? Or how about if the board of directors for a regular corporation promises to use some of their lobbying power to pursue wildlife preservation legislation? Can they be a benefit corporation? And how about this old favorite from my area of the country: If an executive uses their bonus to build an additional wing on their house, thus employing contractors and construction workers as well as creating demand for things like lumber and stone, is that executive not contributing to the economy in a way that benefits multiple members of the public? Are you a benefit corporation if a bunch of people are going to be paid to build a bowling alley onto your CEO's house?

The thing that really guts my ability to take benefit corporations seriously is the lackluster "enforcement" provisions that only permit people already inside the company to sue the company for not making good on its purpose of being a nice guy. If a benefit corporation goes about its business just like any non-benefit corporation does, the general public cannot take legal action to enforce those promises of doing good. And are they really going to do that when there's a sweet personal bowling alley in it for them if they keep quiet?

There could have been plenty of fodder for scrutiny on this whole Kickstarter-Is-A-Benefit-Corporation thing, but the law is just too flimsy for that switch to have much weight. I think it's super nice that Kickstarter wants to do good in the world and donate to charity. That's awesome! But they didn't need to become a special class of corporation to do it. Ultimately, this is a feel-good measure without any real substance, but sometimes the message is what's important.

If you were worried that this would restrict Kickstarter's ability to host a variety of projects, don't be.

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