For those of you that have a passing familiarity (not experts by any means, but you know there is a difference between and S-Corp and an LLC, for example) with the various types of legal entities available to the small business owner, you might be asking yourself, “What the heck is a B Corp”?
A B Corp is a relatively recent phenomenon in the business world, and an interesting way that some companies have chosen to validate their social and environmental intent. B-Corps not only have to undergo a rigorous vetting process in order to achieve B Corp status, they also have to commit to the continuing performance of social and environmental good deeds, while disregarding easy profits. And there is an ongoing certification process after achieving B Corp status.
It’s important to note to our readers that the designation of a B Corp has no legal status whatsoever. Companies that wish to get a B Corp awarded have to get that from a non-profit organization called B Lab, which, as we just noted, is pretty difficult. There are also tough reporting requirements inherent in the requirements to maintain a B Corp status, after the initial designation.
“Okay, so a B Corp is just a made-up thing”, you might be saying to yourself. Well, sort of. It was, of course, developed by B Lab, and as noted, has no legal standing from any government. But, getting approved as a B Corp is hardly easy. It’s a not an undertaking for the faint-hearted or the frivolous. And therefore, customers interested in the premise of social responsibility feel a high level of confidence in the fact that a provider is rated as a B Corp. B Corp’s requirements for certification are quite stringent. And frankly, laudable.
On to something that is somewhat related – although a B Corp has no legal standing, there is a corporate structure offered in many states (including Delaware, where many companies choose to incorporate) that allows the corporation to take into consideration other important social factors in addition to, or in spite of, their bottom line when making decisions. This legal entity is called a benefit corporation.
From the website link:
“A benefit corporation is a new class of corporation that voluntarily meets higher standards of corporate purpose, accountability, and transparency.
Benefit corporations: 1) have a corporate purpose to create a material positive impact on society and the environment; 2) are required to consider the impact of their decisions not only on shareholders but also on workers, community, and the environment; and 3) are required 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 gives entrepreneurs and investors an additional choice when determining which corporate form is most suitable to achieve their objectives.”
A benefit corporation can make its own election regarding whether to be taxed as a C-Corp or an S-Corp. Curiously, a benefit corporation has zero requirements to actually prove that the company is going to do good things; all they need to state in the incorporation filing is their intent to do numbers 1 and 2 above. It’s the honor system for corporate entities. It’s a little bizarre, frankly.
The legal theory that attorneys pitch for becoming a benefit corporation is that the corporation will be protected from litigious shareholders should the company take some action for the greater good while disregarding profit, but there has never been a single case decided in court regarding this scenario, so there is no legal precedent supporting that theory. And since there is no performance bar or measurement for doing social good that a benefit corporation must achieve, it’s not at all clear how the corporation would even prove they did enough good to ward off litigation, if there were pertinent cases.
It is important to remember that, although they seem similar, a B Corp and a benefit corporation are presently two very different and distinct things, despite some attempts to conflate the two, like this article in The New Yorker in 2014.
Obviously, a meld of a B Corp and a benefit corporation would solve the shortcomings of both, but that is probably a ways off.
For companies that want to inject some social consciousness into their business activities, these are the two choices you have at this moment. We can’t help you with becoming a B Corp, but we can help you if you file for incorporation as a benefit corporation.