Nonprofit Insider

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November 2011 Vol. 2 No. 5

U H Y LLP C e r t i f i e d P u b l i c A c c o u n t a n t s
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A new type of corporation to consider

IRS News
By Jennine Anderson, Partner

Are You A Socially Conscious Entrepreneur?

By Deborah Crown, Senior Manager

erhaps youve heard of it. Perhaps youve dreamed of it. Perhaps you wished for it. In any case, its here! Theres a new type of business structure in town: its called a benefit corporation. For entrepreneurs whose business mission includes a broader, more socially conscious vision and not just and only profitability this new business structure allows for various types of businesses to further the accomplishments of a charitable goal. Both Maryland and Virginia have passed laws making benefit corporations legal. The purpose of a benefit corporation (also known as a B Corp) is to create a general public benefit, which is defined as a material, positive impact on society and the environment, as measured by third-party standards, through activities that promote a combination of specific public benefits.

In Maryland the law allows for-profit entrepreneurs to commit to a specific public good; equally, it requires them to report on contributions to that goal and submit to auditing of their impact. Virginia has very similar wording for its B Corps. This new status allows entrepreneurs to consider stakeholders such as employees, communities or the environment in business decisions. In Maryland the law allows both existing and new corporations to obtain benefit corporation status. For existing corporations, according to the Maryland Corporation and Associations Code, the benefit corporation status must be approved by the stockholders. Any corporation seeking benefit corporation status must include a clear and prominent statement in its charter that it is, indeed, a benefit corporation. The benefit corporation status can be terminated at any time by amending the charter to delete the benefit corporation statement. continued on page 2

he IRS recently announced some interesting news relating to the treatment of independent contractors: it's a voluntary program that provides an opportunity for taxpayers, including exempt organizations, to reclassify their workers as employees for employment tax purposes. This program was launched in conjunction with a Department of Labor initiative to step up enforcement related to misclassification of employees in order to avoid providing employment protections. Several federal agencies and states have agreed to coordinate enforcement and share information regarding worker misclassification. The program applies to taxpayers that are currently treating workers as independent contractors or other nonemployees. You will want to consider this program if you have employees misclassified as independent contractors, and it has been too expensive to correct the classification issue in the past. To qualify for the program the workers must continued on page 2

For more information, please contact Jennine Anderson at janderson@uhy-us.com

UHY LLP brings specialists in nonprofit solutions in accounting and tax.

November 2011 Vol. 2 No. 5

Are You A Socially Conscious Entrepreneur?

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IRS News
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As a Maryland benefit corporation, the entitys directors or committee members may consider pertinent factors or the interests of other groups the directors deem appropriate to consider. In addition, there are five factors that must be considered by the directors in determining what is in the best interest of the benefit corporation. These factors are The stockholders of the benefit corporation, The employees and workforce of the benefit corporation and its subsidiaries, The interests of customers as beneficiaries of the general and specific public benefit purpose, Community and societal considerations, and The local and global environment. These directors continue to have the limited liability advantages of other limited liability corporations when they are reasonably performing their duties as directors. There are some reporting requirements that go along with the benefit corporation designation. The entity is required to create an annual benefit report, which must include A description of the way the benefit corporation pursued a general public benefit during the year, and the extent to which the general public benefit was created; A description of the way the benefit corporation pursued any spe-

cific public benefit that the charter states is the purpose of the benefit corporation; A description of any circumstances that hindered the benefit corporation from creating public benefit; and An assessment of the societal and environmental performance of the benefit corporation prepared in accordance with third-party standards applied consistently with the prior years benefit report or accompanied by an explanation of the reasons for any inconsistent application. In addition, the annual benefits report must 1) be delivered to all stockholders within 120 days following B corps year-end, 2) either make the report accessible to the public per their website or on demand and 3) to do so without charge to anyone who requests a copy of the report. With any corporate status change or new regulations, there are complications and considerations. (Plenty!) Yet for those entrepreneurs whose socially conscious goals and practices make their business a good potential fit for the B Corp structure, this new option may be more than just a good idea. It might be the perfect next step for you to take. If you want more information about benefit corporations and how applicable these new laws are to your company, please dont hesitate to contact me: dcrown@uhy-us.com.

have been consistently treated as nonemployees and all associated 1099s must have been filed for the previous three years. Your organization cannot currently be under audit, and, if it has previously been audited regarding worker classification, it will only be eligible if it has complied with the results of the audit. As part of the program agreement, the organization will agree to treat the workers as employees for future periods. In exchange, the organization will pay only 10 percent of the employment tax liability that was due on the compensation paid to the workers for the most recent year. The organization will not be liable for any interest and penalties on the amount and will not be subject to a worker classification employment tax audit of the workers being reclassified under the voluntary program. Forms will be available in fall 2011 to apply for participation in the program. The application should be filed 60 days before the organization wants to begin treating workers as employees. Once accepted into the program, the organization will be required to make a full and complete payment of any amount due. As always, if you need additional insights or support in understanding and applying these new IRS regulations, I, along with the team at UHY Mid-Atlantic, are here to help.

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