Becoming a B: Part 1
What is the difference between a B Corporation and a Benefit Corporation?
While commonly used interchangeably, B Corporation is not just an abbreviation for benefit corporation. They are in fact two separate but related things.
The “B Corporation” label is a certification for businesses that use the power of business to solve social and environmental problems. Unlike “Organic,” “Fair Trade,” or LEED certifications, the B Corporation certification does not look narrowly at product attributes to determine their environmental or social impacts; rather, B Corporation certification looks comprehensively at the entire business – its governance, suppliers, employees, and social and environmental impacts – before determining whether the enterprise satisfies objective minimum requirements. Companies are rated on a scale of 0 to 200, and companies that achieve a score of 80 “pass” and are eligible to receive the certification.
The certification is administered by B Lab, a non-profit corporation based in Pennsylvania. Designed to increase transparency and accountability, and decrease companies’ ability to greenwash, the B Corporation certification is the product of decades of collaborative research and analysis by over 20 leaders in industry standards, sustainability, and certifications. Certification costs only $500 annually for companies with annual sales under $2M, and beyond that, fees increase modestly with sales in order to compensate for the more time-consuming analysis required for larger firms. Benefits of certification include:
- Substantial discounts (often offsetting the cost of certification within the first month) from a plethora of partners including Salesforce, Intuit, Inspire Commerce, and literally dozens of others which have signed-on to support the B Corporation movement.
- Marketing and Branding benefits to consumers: market research has shown that consumers are more likely to believe a company’s claims when they are backed by an independent third party. Additionally, as B Corporations continue to increase in both number and notoriety (large corporations like Method, Seventh Generation, Care2, and Patagonia have signed on, to name a few), consumers will gain increasing trust in the B Corporation brand which certified companies can leverage to charge a price premium.
- Marketing and Branding benefits to investors: investors familiar with the certification and passionate about investing in responsible companies will take ease in knowing that the B Corporation certified companies will be required to uphold the highest standards of transparency, ethics, and stakeholder responsibility. It supplements and simplifies investors’ own due diligence efforts by providing an additional layer of independent analysis.
- Greater profitability? Strengthening stakeholder ties with groups like the communities that support the business, the employees, and the business’s customers has been linked positively with profitability; so has driving down cost through eco-efficiency; and so has upholding heightened business ethics. Espousing B Corporation governance and operations principles may well make a company MORE profitable, not LESS.
While the “B” in B Corporation does stand for “benefit,” the benefit corporation legal entity is separate and distinct from the B Corporation certification. B Lab has been instrumental in the advocacy for the benefit corporation legislation, and many of the benefit corporation’s requirements and principles mirror those of the B Corporation certification. But, the benefit corporation legal entity is not a certification but rather a legal entity, like an LLC or a traditional Corporation or a non-profit Corporation. To form a benefit corporation, you must file compliant articles of incorporation with the Secretary of the State in one of the eight states which have passed benefit corporation statutes (the benefit corporation statutes have been passed at a rapid rate and are likely to exist in over ten states by 2013). For an existing corporation, the articles must simply be amended to comply with the benefit corporation statute.
Key components of the benefit corporation legal entity include:
- Annual Benefit Reporting: Each year, the benefit corporation must make publicly available a report detailing its social and environmental performance. The report must be prepared in accordance with a third-party standard (such as B Lab’s B Corporation standard) to ensure independence, objectivity, and transparency in the reporting.
- Public Benefit Purpose: The corporation has the purpose of creating a general public benefit, define as a material positive impact on society and the environment, as assessed against a third-party standard. This expands the ability of the corporation to pursue a purpose not strictly related to return on investment to shareholders (as is the case with traditional corporations); it also expands the corporation’s accountability to the public benefit purpose
- Benefit Enforcement: Shareholders can bring an enforcement action against the corporation to challenge the corporation’s pursuit of its public purpose. Potentially broadening the scope of enforceable purposes of the corporation creates greater accountability to the beneficial purpose.
- Fiduciary Duties: Directors and Officers in several states (see our separate state-by-state comparative analysis for detailed information) are required to consider the effects of the corporation’s operations on a broad array of stakeholders, such as shareholders, employees, customers, the community, the local and global environment, and the long-and short-term interests of the corporation. While this may appear arduous or complicated, most modern research on corporate governance and stakeholder relationships indicates that this sort of consideration is simply a best practice for an enterprise seeking sustainable profitability.
It should be noted that becoming a benefit corporation or getting B Corporation certified has no impact on the entity’s federal tax status: any corporate entity – benefit corporation or otherwise – will be either a C Corporation or an S Corporation for federal tax purposes. Being a B Corporation or a benefit corporation has no bearing on that status, and enterprises can still elect either C or S status as a benefit corporation or a B Corporation.
**Nothing in this message is or may be considered legal advice or as a substitute for legal advice. Viewing the information contained in this blog post is not intended to create and shall not create an attorney-client relationship between you and the author, you and B Revolution, Inc., or you and any of B Revolution’s associates or agents.**