Design Innovations for Infants and Mothers Everywhere Inc., or DIIME, was founded in 2010 by a group of eight students in the University of Michigan’s Global Health Design program. The high rate of maternal mortality in the developing world was the health issue that grabbed the attention of the founders of DIIME. Every year between 300,000 and 500,000 women die due to complications related to childbirth and pregnancy, while four million infants die every year before reaching four weeks of age.
DIIME founders resolved to create a company that would develop low-cost medical devices to improve maternal and infant health in Ghana and other parts of the developing world. At the same time, the company would have to earn sufficient profit to be sustainable and be able to raise capital from socially oriented investors. DIIME would be a “social enterprise,” in other words, a business dedicated to generating both financial and social returns.
Like many social enterprises, DIIME quickly discovered that the existing legal entity forms were not a good fit with its “double bottom line” objectives. DIIME’s profit-making goals would be problematic in a nonprofit corporation, while DIIME’s social mission seemed equally out of place in a for-profit corporation, where company directors typically pursue profit maximization. To solve this problem, since 2010, legislatures in 14 U.S. states, including most recently Delaware, have adopted statutes expressly permitting the creation of a new type of legal entity: the “benefit corporation.” Benefit corporations are for-profit businesses dedicated to providing benefits to society while also protecting company directors from liability to shareholders for not maximizing profits. (A benefit corporation bill was introduced in Michigan in 2011, but the Michigan legislature has not yet taken action.)
DIIME turned to the International Transactions Clinic (ITC) at the University of Michigan Law School for advice. DIIME and law students enrolled in the ITC worked together to organize the legal formation of an entity in Michigan, create a capital structure, protect the company’s intellectual property, and move DIIME’s international business plan forward. Most recently, the company took the decisive step: DIIME included in its new articles of incorporation key “benefit corporation” provisions of the Model Benefit Corporation Act. This allowed DIIME to pursue its social mission, take into account interests other than profit maximization, and protect its directors to the extent possible from any resulting liability, all in the context of a for-profit corporation organized under the existing Michigan Business Corporation Act. DIIME’s articles of incorporation were formally accepted by the Michigan Corporation Division on April 30, 2013.
“We were delighted to be able to incorporate DIIME in our home state of Michigan without having to sacrifice our company’s double bottom line mission,” said Gillian Henker, one of the founders and current president of DIIME. “We’re thrilled to pave the way for other social enterprises wishing to incorporate here in Michigan. This is a big step forward not only for our company, but for any company that sees its role in society as being bigger than simply maximizing profits.”
DIIME is truly a social enterprise pioneer. To my knowledge, DIIME’s “do-it-yourself” benefit corporation is the first in the country. DIIME has blazed a trail for social enterprises not only here in Michigan, but also in other jurisdictions that also have not enacted a benefit corporation statute.
The ITC team consisted of third-year law students Michael Byun and Gabriel Katz, supervised by David Guenther, a partner at Conlin, McKenney & Philbrick, P.C. in Ann Arbor and an adjunct clinical assistant professor in the ITC.
“There has been a great deal of academic commentary and debate on the purpose of the corporation and whether it’s to maximize profits to shareholders,” Guenther said. “There has been much less commentary on who should answer that question—shareholders, courts or legislators.”
“We looked very carefully at the Michigan Business Corporation Act and concluded there was no reason why shareholders couldn’t include a social purpose and other benefit corporation provisions in their articles of incorporation, even without the existence of benefit corporation legislation here in Michigan. That’s exactly what DIIME wound up doing. Fortunately, the Michigan Corporation Division gave DIIME’s articles a thoughtful review and agreed with us.”
Family- and relationships-oriented, Terry Lambert served as the hospital administrator at Walnut Ridge. Read more about his undertakings on this website.
You should also request a federal tax identification number (FEIN). You may want to consult a CPA to determine which type of entity offers the most tax advantages in your state.
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