Determined DIY: One Entrepreneur’s Experience Filing a Maryland Benefit LLC

Social Entrepreneur, Guest Blog Post

An emerging impact investor starting a new company and private equity firm shares his story of filing the company as a Benefit entity as a call for more resources for Benefit LLC registration, and as an effort to help other entrepreneurs.

By David Sanders

When Maryland passed the Benefit Corporation legislation in 2010, I was working at a social venture fund in Cape Town, South Africa where the news spread quickly. There was now a corporate structure in the United States that empowers management to account for social and environmental interests when making business decisions.

As a person who considers my own personal and business impact through a holistic lens, the concept makes perfect sense. Upon deciding to form my own company in my home state of Maryland, I wanted to consider the Benefit Corporation option. Unfortunately, due to the general lack of information at the Maryland State Department of Assessments & Taxation (SDAT)  on a more recent development – Benefit Limited Liability Companies (LLCs) – I found it a nuisance to register. It has also been an amazing learning experience, and it’s given me the chance to connect with other impact entrepreneurs.

Discovering the LLC option

Preliminary research suggested an LLC, not a corporation, is the most appropriate legal structure for my business. This raised an important question: can LLCs enjoy the same advantages?

Unsure of how to proceed, and uncertain as to whether I had the right forms, I phoned B Lab, the not-for-profit that certifies B Corps and helps legally structured Benefit Corporations and other socially responsible companies leverage their brand and join a like-minded network.

The very helpful B Lab staff member shared a terrific piece of information: in the state of Maryland there is an option to form a Benefit LLC! I had never heard of such a thing, but as a constituent of State Senator Jamie Raskin was not surprised to learn that [he had introduced both Benefit Corporation and Benefit LLC bills]. Subsequent research produced a couple of articles (one by ChangeMatters’ Amy Kincaid) that highlight Benefit LLCs.  B Lab also pointed me to www.benefitcorp.net

I spoke with a partner at one of the law firms B Lab recommended who had never before formed a Benefit LLC,. The paperwork seemed fairly straightforward, and confident I could manage on my own, I decided to proceed independently. This decision led me down a hazy path.

The filing process

I called Maryland SDAT after having found the LLC Articles of Organization form on their website. Howver, the template cannot be edited, and there is no way to indicate one intends to form a Benefit LLC. On the phone, I endured long, redundant recordings and tedious wait times before getting through, only to discover that Benefit Corporations were barely on their radar. The woman I spoke with had never even heard of Benefit LLCs. Ultimately, SDAT was of little help.

Thankfully, SDAT does have one document online that lists Maryland Benefit Corporations and Benefit LLCs, so I decided to reach out to others who had walked this path. After leaving voicemails at various companies and speaking with under-informed staff at others, I connected with Jonathan Bell of Solar Honey. Jonathan was friendly and supported my non-use of a lawyer. He had amended his company from a standard LLC to a Benefit LLC, however, and was unfamiliar with the unique process of forming one from the start. I then tracked down Amy Kincaid at ChangeMatters, who was my saving grace.

After speaking with Amy, I wrote my own one-page Articles of Organization, named my business as a Benefit LLC and stated that it represents social and environmental interests, and mailed in the form along with a check for expedited processing. By this point, I figure I’ve given myself a good shot at structuring an entity that aligns with the new paradigm in business.

There are certainly many unknowns for Benefit LLCs. How protected are we against members when we make decisions that some may fear undercut profit-maximization? How much additional paperwork and reporting will be required of us in the coming years? And overall, how valuable is the Benefit structure and brand?

I’m excited to be participating in the early stages of this movement, and despite some difficulty, I never considered sidestepping the Benefit LLC structure. The Benefit movement is a superb example of legislative progress, and if I – along with other impact entrepreneurs – have to endure a bit of hardship along the way, I’ll feast on the learning experience.

David Sanders is an impact investor in the private equity fund market. He has experience rating major companies on mission and values indicators and researching industry statistics for private equity. Recently, he worked for Heart Capital (Cape Town), South Africa’s first social enterprise incubator.