What is a Benefit Corporation?

The “B” in B Corp stands for “benefit”—but it’s not the same as a benefit corporation. This B refers to the B Corp mission, which can be summed up as using business as a force for good.

B Corps are often confused with benefit corporations. A B Corp may also be a benefit corporation, and vice versa, but these terms mean very different things. A business receives a B Corp certification, while a benefit corporation indicates a specific legal entity.

They overlap because they stick to business practices that prioritize:

  • Social responsibility
  • Environmental sustainability
  • Corporate transparency and accountability

Certified B Corp:

A Certified B Corporation can include a business with any legal structure, and at any stage in the lifetime of the business, but has been certified by B Lab. This organization helped design and advocate for Benefit Corporation legislation. It also set the standards for B Corp certification. Certification includes an impact assessment and meeting certain standards, and these are checked every two years.

Benefit Corporation:

A benefit corporation is a legal structure (like an S Corp, LLC, etc.), for-profit business and is currently available in most states and many countries. Benefit incorporation is organized around the principle of the triple bottom line. To summarize, it legally allows management to balance their businesses’ impact on society and the environment with their financial bottom line, and is self reported. There is no official certification. This protects the benefit corporation from lawsuits if the stakeholders make decisions based on other factors other than financial.

What does it take to form a B Corp?

Rigorous Evaluation

A key step to getting certified is to complete the B Lab Impact Assessment. This process requires both self-reporting, and it also includes a review by independent sources. Additionally, they look at your company’s social choices, impact on the environment, and how this affects your shareholders.

Legal Requirements

B Corps that are incorporated must have a structures that allows management to pursue the interests of all stakeholders, including employees, local communities, and customers. A benefit corporation already meets these requirements.

The legal requirement means that the B Corp ensures:

  • Legal protections for directors and officers when they make decisions that consider the interests of all stakeholders
  • Ways of holding directors and officers accountable
  • Limits on who holds these expanded rights

Each form of legal entity will face different requirements for B Corp certification:

  • Corporate entities other than a benefit corporation will need to assess and change their governing documents, with special rules for:
    • Multinational and publicly-traded companies
    • Subsidiaries and franchises
    • Companies incorporated outside the U.S. or Canada

Making it Official! The final step is to sign the B Corp Declaration of Interdependence.

Pending Status: Startups and New Businesses

Because B Lab requires a year of data for to asses a company, startups (defined by B Lab as any company in business less than 12 months) can apply for pending status, good for twelve months.

Benefits to pending status include:

  • Out-of-the-gate branding as a member of the B Corp community (B Corp certification is “the highest standard for socially responsible businesses”)
  • Access to markets and funding
  • Access to the peer group of existing B Corps (2,000+ businesses internationally)

Why Form a B Corp?

According to B Lab, as of 2017, there are over 2,100 Certified B Corps in 50 countries across 130 industries, from real estate to energy to chocolate to insurance. For example, a company may become a B Corp out of a desire to change the world. Or maybe just because they think it will lead to more profits.

The range of reasons varies. Companies become B Corps to:

  • Attract investors
  • Advocate for or pass legislation regarding a specific issue
  • Gain public notice from the press, potential employees, or other supporters
  • Partner with like-minded businesses and peers
  • Access funding and services
  • Protect and advance their missions
  • Benchmark their performance

Consumer Perception = Consumer Dollars

More and more people are basing buying decisions on factors other than price. For example, millennials are a huge driver behind mindful shopping. Experts predict them to account for 75% of the global market by 2025. For example, brand-name B Corps like Ben & Jerry’s Ice Cream, Patagonia, Warby Parker® and Seventh Generation® all prove the positive impact social and environmental choices have on a company’s bottom line.

B Corp: Pros and Cons

Cons

There are questions about the ability of B Corps to become more than a small portion of the overall business world. As of 2017, most B Corps are small and mid-sized companies. So, similar to how only 1% of U.S. farmland is organic, there is a small likelihood of the U.S. corporate world switching from the current culture of putting profits over social or environmental choices.

Pros

However, the number of certified B Corps jumped from 500 in 2012 to 1,200 in 2015. Also, the kind of business mentality that lead to B Labs founding in 2006 is shared by many established companies. For example, Siemens, the well-known and hugely profitable German industrial giant, is neither a B Corp or a benefit corporation. However, Siemens came in first in Corporate Knights’ 2017 Global 100 ranking. It scored over 90% for sustainability in categories like energy, innovation, and human resources.

B Corps: Live Your Values

Most importantly, becoming a B Corp shows a strong desire on the part of many people to take charge of their lives and have a good effect on the world. B Corps also allow consumers, employees, and leaders to put their values and resources to work.

Ready to form a B Corporation?

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