How Benefit Corporations and B Corps Build Better Companies

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Have you ever asked yourself why companies can’t be more evolved, do more good, or (to paraphrase Google’s motto) not be evil? The answer is some can, if they are benefit corporations.

A benefit corporation is a company that sets higher standards for environmental sustainability, accountability, transparency, and overall social good than traditional corporations. These are companies with a so-called “triple bottom-line,” that includes people and the planet as well as profit.

Benefit Corporations Are Becoming a Force

Benefit corporations and certified B Corporations are part of a growing movement, there are estimated to be more than one thousand of these companies in existence, up from zero in just 2006. Benefit corporations currently can only exist in 20 states.  If you want your future company to be founded on the goal of doing good on top of doing well, a benefit corporation may be the business structure to choose.

How Benefits Corporations Differ From Other Corporations

To better understand what a benefit corporation is, it helps to understand why traditional corporations are not more evolved. Corporations do not typically look past short-term financial gains to make a long-term social impact because they are not allowed to do so. Directors and executives of corporations (also known as fiduciaries) are legally bound to make decisions for the good of the shareholders. Increasing shareholder value means making money by any means necessary. Any warm and fuzzy social benefits are secondary.  Companies with social goals, under the traditional structure, are called nonprofits.

Benefit corporations are like a hybrid of the two, for-profit companies with the ability to think like nonprofits. Executives and boards can make business decisions with a conscience, regardless of whether they extend beyond the bottom line.

How Benefits Corporations Are the Same as Other Corporations

Benefit corporations do not take donations, they are not philanthropies but businesses with profit motives like any other public company. They pay the same types of taxes that for-profit companies pay, in fact you can have a benefit C Corp or benefit S Corp, depending on your business needs. (For more about the history and rationale behind benefit corporations, read The Need and Rationale for the Benefit Corporation. (Full disclosure, it’s a white paper. But interesting for those who like that sort of thing.)

Benefit Corporations Annual Reporting

Benefit corporations are held to their own set of standards. They must have a stated social mission, for which they are accountable. They must transparently report their social efforts and impact in regular annual reports and business documents. The corporations are judged against a third-party standard, set by a group called B Lab, a nonprofit that lobbies for and provides analytics to advocates of benefit corporations and certified B Corps.

Wait, What Are Certified B Corps?

There is a distinction between benefit corporations and B Corps, or certified benefit corporations. Basically, B Corps are those corporations that go the extra mile (and do the extra paperwork) to gain official certification through B Lab. The work required to become a B Corps includes assessments, questionnaires, reviews, and supporting documentation. Certified B Corps are judged under a scoring system using something called a B Impact Assessment that looks at governance, how you treat workers, your role in the community, and your impact on environment. An overall score of 80 out of 200 qualifies you as a B Corp. View an example of what B Corp reporting looks like in the annual report of B Corp King Arthur Flour and King Arthur Flour’s B Impact report.

In considering this distinction, it’s important to remember that benefit corporations do not have to be B Corps, there is no certification required. Additionally, B Corp certification is a process. Your company may start out as a benefit corporation and become a B Corp in due time.

The defining aspect of a benefit corporation is a stated mission from day one of incorporation (in fact, it must be stated in your articles of incorporation). Only 20 states recognize benefit corporations under the law, including California, New York, Delaware, and Washington, D.C. A startup in one of these states may elect benefit corporation status as a C Corp or S Corp, and you can even reincorporate an established business as a benefit corporation.

Of course, you should discuss your options with an accountant and/or business advisor before making individual decisions. If you are interested in learning more about widely known B Corps or those near you, check out the find a B Corps directory from B Lab.

How will your company save the planet? Check out our Business Fundamentals & Tactics course and define your mission.

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