The Buzz on Benefit Corporations & B Corps

Ben & Jerry’s, Etsy, Seventh Generation and our very own local icon, Patagonia, are a few of the leaders that have stamped their brands with a socially and environmentally responsible framework designed to identify positive impact businesses. Incorporating as a Benefit Corporation or receiving a B Corp certification are two ways that for-profit companies are leveraging business to create awareness for social change.

Before we dive into specifics, there are differences between a Benefit Corporation and a B Corp. To encapsulate, a Benefit Corporation is a legal status administered by the state, similar to an LLC or LP. There are currently nineteen states that have adopted and passed legislation allowing for this legal business status. Maryland paved the way in 2010; California jumped on board in 2012; and Delaware joined as the most recent state in August.

Similarly—but different—a business can also choose to become a B Corporation or B Corp, which varies slightly from a Benefit Corporation. A B Corp is certified by the nonprofit B Lab and must meet rigorous standards of social and environment performance, accountability and transparency. As seen on www.bcorporation.net, to date there are 859 certified B Corps in 29 countries across 60 industries. Companies that become a Certified B Corporation ingrain a level of social responsibility into their company culture.

Details of a Benefit Corporation
As companies are becoming more and more aware of their social and environmental fingerprint, they are considering incorporating as a Benefit Corporation. This relatively new type of for-profit corporation is for companies that are looking to make their mission about pursuing strategies that positively impact society as a whole.

A state-by-state legal status, Benefit Corporations are driven by the impact their decisions have on society and the environment, and although there is still the fiduciary responsibility to generate revenue, their profits are not the sole goal of the organization. Unlike a traditional corporate structure, a Benefit Corporation does not only consider the financial interests of its shareholders, but it compels the corporation to consider the interests of people and our planet as well. The laws of a Benefit Corporation protect mission-driven corporations from certain lawsuits by shareholders who request the company abort its mission-minded approach.

Benefitcorp.net provides a list of the three major characteristics of Benefit Corporations, including the following requirements:

1. to have a corporate purpose to create a material positive impact on society and the environment;
2. to consider the impact of their decisions not only on shareholders but also on workers, community, and the environment; and
3. to make available to the public an annual benefit report that assesses their overall social and environmental performance against a third party standard.

Becoming a Benefit Corporation does not affect a company’s tax status; the company can still be taxed as a C or S Corp. As long as the state in which the company resides recognizes the Benefit Corporation status, an existing company can move forward with this new incorporation. For an existing company to become a Benefit Corporation, the company must change its governing documents, where in most states requires a 2/3 super-majority vote of shareholders.

Details of a B Corp
In contrast to the Benefit Corporation, a B Corp is not a type of corporation or entity and not administered by the state. In fact, any type of business can become certified as a B Corp. To become a B Corp, the company must meet standards and a set of requirements set forth by B Lab, a nonprofit organization based in Pennsylvania that issues the certification. B Lab considers the company’s policies on social and environmental performance, accountability and transparency.

Noted below is the three step evaluation process when applying for a B Corp certification.

• Step One: meet the B Impact Assessment requirement, which assesses the overall impact of the company on its stakeholders.
• Step Two: meet the legal requirement to become a B Corp, which could mean making changes to the company’s governing documents.
• Step Three: pay an annual licensing fee and get recertified every two years to maintain the B Corp certification.

B Lab analogically states, a “B Corp certification is to sustainable business what Fair Trade certification is to coffee or USDA Organic certification is to milk.” According to B Lab’s website, there are currently 859 B Corps, across 28 countries and 60 industries.

Companies seeking to become a B Corp are acknowledging their socially-minded missions and ingraining that responsibility into the company’s culture. B Lab refers to it as “Protecting Your Mission.” No longer is it just a desire to be socially responsible, but rather guaranteeing the commitment to make an impact. B Lab states, “The value of meeting the legal requirement for B Corp certification is that it bakes sustainability into the DNA of your company as it grows, brings in outside capital, or plans succession, ensuring that your mission can better survive new management, new investors, or even new ownership.”

A company can be both a Benefit Corporation and a B Corp. Patagonia is one example of a company that has not only incorporated as a Benefit Corporation, but has also attained certification from B Lab as a B Corp.

Out of California’s legislation was also born a new law creating the “flexible purpose company” (FlexC), allowing a company to implement a specific social or environmental focus, versus the wide-ranging commitments of a Benefit Corporation. In addition, nationally recognized, a company can also form a low-profit limited-liability (LC3) business entity, a new variation of the limited liability company (LLC) that focuses on its ability to pursue charitable, educational or socially beneficial objectives, while making little or no profit. Profit is the secondary goal, making a positive impact on society is the first.

Both Benefit Corporations and Certified B Corps are relatively new in corporate America and gaining a lot of momentum as our culture is shifting towards a deeper awareness of corporate social responsibility.