Local attorney helps make legal history

A Michigan start-up company, a partner at Conlin, McKenney & Philbrick, P.C. in Ann Arbor, and a team of University of Michigan law students have made Michigan legal history.

Design Innovations for Infants and Mothers Everywhere Inc., or DIIME, recently became the first "do-it-yourself" benefit corporation in Michigan.

DIIME was advised by David Guenther, a partner at Conlin, McKenney & Philbrick, P.C. and an adjunct clinical assistant professor in the International Transactions Clinic (ITC) at the University of Michigan Law School, and an ITC team consisting of third-year law students Michael Byun and Gabriel Katz.

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 infant 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 able to raise capital from socially oriented investors.

DIIME would be a social enterprise--a business dedicated to generating both financial and social returns.

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 13 U.S. states 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 taken action.

DIIME turned to the ITC for advice. DIIME and law students enrolled in the ITC worked together to organize the legal formation of an entity here 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, allowing 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.

"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."

"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 now the 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."

Published: Thu, Jul 4, 2013

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