Introducing the Totally Unnecessary Benefit LLC

Abstract

Unlike statutes authorizing benefit corporations, which have been recently enacted in over 30 states to accommodate social enterprises, no one has articulated a legal justification for benefit LLCs. Indeed, no plausible legal justification can be articulated. The expansive flexibility of conventional LLC law is already perfectly amenable to social enterprises. Instead, the advent of the benefit LLC, embraced most prominently by Delaware in 2018, plainly reveals what was arguably already apparent in the context of its corporate predecessor: that the aim of benefit entity statutes is not law reform. Rather, it is about branding.

But the creation of this legislatively-endorsed brand should raise serious concerns. In the absence of meaningful accountability measures to ensure that businesses embracing the statutory “benefit” label are actually deserving of it, the state-sanctioned “benefit” designation may be exploited by entrepreneurs to mislead the public and compete unfairly with conventional for-profit businesses. Moreover, even if statutory benefit entities do live up to their “benefit” aspiration, they impose their own costs by adding needless complexity to the law and exacerbating the popular misperception that conventional for-profit businesses are purely profit-driven. It is hard to see why legislatures should employ state power for private gain in this way, especially where there already exist non-governmental certifications available to socially-minded, purpose-driven businesses seeking to distinguish themselves in the marketplace. Accordingly, this Article makes the case that statutory benefit entities—both corporations and especially LLCs—are unnecessary as a legal matter and unwise as a policy matter.

Keywords: social enterprise, social entrepreneur, LLC, limited liability company, benefit corporation, corporation, shareholder primacy, shareholder wealth maximization, Delaware

JEL Classification: K20, K22, K29