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The benefits of benefit corporations

New form of business allows charitable organizations to exist alongside for-profit companies with less risk

The Beatles left a vast legacy that continues to influence music and musicians around the world more than 40 years after they broke up as a group. They have a business legacy that has not fared quite so well. The well-known story of Apple Corps Ltd. is one of colossally bad management that allowed massive employee pilfering, outrageous travel and entertainment expenses and employees who gave themselves raises. At one point the company used a psychic to authorize business deals. No wonder John Lennon called it a “psychedelic Woolworth.”

Although Apple Corps was organized as a traditional business, its founders were not interested in making a profit. When Paul McCartney and Lennon announced the company in 1968, McCartney said, "It's just trying to mix business with enjoyment. We're in the happy position of not needing any more money. So for the first time, the bosses aren't in it for profit.” He said he wanted Apple Corps to be “a controlled weirdness … a kind of Western communism." Later, Lennon said, "It's more of a trick to see if we can actually get artistic freedom within a business structure, to see if we can create nice things and sell them without charging three times our cost".

As altruistic as the four young men were at the time (none were yet 30), they still wanted to make money. The difference between them and other music and entertainment figures was that the Beatles did not need or want to make the most money possible. Their other goal was to find and fund new artists. It was a purpose born out of their own experiences trying to break into the recording business only to be blocked by gray-suited businessmen unconnected to their art. Lennon said he wanted Apple Corps to be the place “where people who just want to make a film about anything, don't have to go on their knees in somebody's office.” Indeed, at Apple Corp’s official opening one observer noted that “the grey suits were conspicuous in their absence.”

If the Beatles were forming Apple Corps today they might have chosen to organize it as a benefit corporation. This is the newish business form available in several states that allows a charitable purpose to exist in the same business alongside the profit motive without triggering shareholder lawsuits. It works this way: If the founders establish a mission that will have a material positive effect on society and agree to annual reports on their progress, the state corporation law won’t let the directors be sued by shareholders who think not enough profit is being made. I think Apple Corps would have qualified as a benefit corporation. The fostering of new artists is the kind of positive effect the law envisions. Certainly, John, Paul, George and Ringo—as founding directors—would not have wanted to be liable to their other investors who might have reasonably claimed that giving Ken Kesey a typewriter, a room and money to reminisce about the ’60s is a waste of it.

The benefit corporation is not just for small do-gooder enterprises. For example, the clothing maker Patagonia Inc. shifted to the new corporate form in 2012 because, as its founder said, the form provides the “legal framework to enable mission-driven companies like Patagonia to stay mission-driven through succession, capital raises, and even changes in ownership.” The form would have fit the similarly robust Apple Corps, which was named the most successful new record company of the year in 1968, and would later have its share of business ups and downs.

The benefits of the benefit corporation are not all-encompassing. Even if it were founded as a benefit corporation, Apple Corps would still have been badly managed at the outset. It turns out the Beatles were never challenged about their mission. It was their complete lack of business experience that led to the early troubles. Maybe they should have had some gray suits around the place.

Bruce Collins

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