Education Tech Companies Ponder Benefit Corporation Status

In the US, many states are adopting the use of a benefit corporation status that lets a company pursue social good, even at the expense of financial gains, without the risk of being sued by investors — an appealing option for many education-related companies.

According to Ki Mae Heussner of GigaOm, education technology companies are hoping that the new legal status in United States could help them overcome industry distrust.

The benefit corporation status provides protection for for-profit companies that pursue social-responsibility initiatives at the expense of financial gains.

So far, 19 states have passed legislation that enables companies to incorporate as a Benefit Corporation, or B Corp, (instead of a C Corp, S Corp or LLC, for example), giving them legal protection to pursue social and environmental goals. It allows companies to potentially sacrifice short-term financial interests to build long-term value for its community or other public stakeholders — without getting sued by investors.

Similarly, the certified B corporation status is a separate seal of approval conferred by a third-party. It enables companies like Patagonia, Warby Parker and Etsy to communicate their commitment to social responsibility — “But it isn’t legally binding.”

Socratic Labs was one of the first companies to take advantage of Delaware’s newly passed B Corp law. For the company, “it lets the accelerator build a sustainable business and attract strong startups and talent, while establishing that it’s formally bound to the interests of the wider community.”

Few other education companies have incorporated as a B corp, while a larger number of education companies have become certified B corps.

It’s not necessarily going to be right for every education company – those that directly target students and parents likely won’t face the same kind of resistance as those selling to schools. And new startups may not want to put in the extra investments of time or money. Or they may worry that potential investors could shy away from a relatively unknown legal structure that could carry different tax implications (although mission-driven startups may view the ability to screen out mismatched investors early on as an advantage). Still, more education companies might find it an option worth exploring.

According to Ariel Diaz, founder and CEO of digital textbook startup Boundless, “it is something we’d look at mechanically and legally to see if it makes sense. Diaz added that “until it establishes a well-known brand it might not have much market benefit when you’re selling to people who aren’t following these types of trends.”