Benefit corporations and certified B Corps pursue societal and environmental improvements in addition to focusing on increasing shareholder value.
What is a Benefit Corporation?
A benefit corporation is a for-profit corporation that states in its approved bylaws that it is committed to improving society, the community and the environment in addition to turning a profit.
Declaring as a benefit corporation does not mean that the company has to conduct a certain type of business, only that it considers its employees, customers, community and the environment when making business decisions.
Benefit Corporations and B-Corps Definition
Benefit corporations and certified B corporations are legal structures that give protection to companies that consider things other than increasing value for shareholders. These considerations, which tend to be driving factors in the business decisions of the company, include the community, environment, customers, employees and suppliers, in addition to the shareholders.
This is not to say that shareholders are not considered at all in the decision- making process, simply that the corporate entity is allowed to consider things other than increasing shareholder value.
Purpose of Benefit Corporations
The purpose of creating benefit corporations was to afford legal protections to companies looking to pursue societal and environmental good at the expense of profit (shareholder value). Legal precedent dictating shareholder primacy, or the concept that shareholder interests should come before anything else when making corporate decisions, was first established in a case in 1919 (Dodge v. Ford Motor Co.) and has held fast over the years. Rulings upholding this precedent have been made as recently as 2010.
Essentially, a corporation must uphold its fiduciary responsibilities, which though never explicitly stated in these cases or in corporate charters, include putting shareholders above all else. If corporations do not do this, they can be sued.
The reality is that almost anyone can declare themselves a benefit corporation if they so choose. There are transparency provisions, which prompt the publishing of documents highlighting the social and environmental impact of the corporation. However, there is no regulatory body that has shown interest in forcing the removal of benefit corporation status if a company fails to do so.
The desired goal of the creation of legal status as a benefit corporation is to ensure that a company truly is concerned with something other than profit. This is in contrast to the profit-driven directive which the vast majority of corporate entities operate under. The reality is that there is little to compel these corporations to adhere to the guidelines laid out for a corporation with that status. The transparency provisions recommend the hiring of a third party to independently vet the corporation’s actions. In reality, corporations can simply grade themselves.
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Benefit Corporation Provisions
Benefit corporations include benefit-related provisions in their corporate charter, which is the legal document that corporation founders submit to the state in which they incorporate. The charter outlines the company’s objectives, the proposed structure and the proposed manner of operations. A provision, in this case, is a specific line within that charter.
Benefit corporations usually have the following provisions:
The corporation states in its charter its purpose, which outlines the social benefits that the company will take into consideration during the business decision-making process.
The accountability provision lays out to whom the company will be accountable for steps taken toward achieving the social benefits in its purpose provision.
The transparency provision typically states that the company will produce detailed reports on its benefit activities.
Why Register as a Benefit Corporation?
Most corporations must uphold their fiduciary responsibilities to the shareholders. While profit is not exclusively stated in any corporate charters, it is well understood that profit is the driving force behind corporate business decisions.
There are a few reasons why a company would want to register itself as a benefit corporation. One of the primary ones is to reap the benefits of marketing the company as such. The title conveys the message that the company is interested in and actively pursuing societal, environmental and employee treatment improvements. B-corps attract and retain talent this way.
Another reason is to block potential legal action that shareholders may take against a corporation in which they’re invested if they feel as though the decisions made do not qualify as upholding the fiduciary responsibilities required of the corporation. Benefit corporation or B- corp status lets your corporation take into account the social benefit for which the company is working in addition to profit considerations.
Another benefit is improved attractiveness to investors. Certified B-corps are particularly attractive to potential investors in the age of the socially and environmentally responsible public. The fact that B-corps focus on things other than profit margins doesn’t appear to have stayed the hand of private investment. By the middle of 2017, nearly all Silicon Valley venture capital firms had invested in a B-corp or benefit corporation. With the number of companies registering as B-corps or benefit corporations on the rise (nearly 1,250 B-corps were in operation in 2017, according to the same report), the amount of investment is likely to increase significantly as well.
Who Are B-corps For?
Status as a benefit corporation or a certified B-corp can be conferred on any corporation, regardless of industry. Benefit corporations and certified B corporations were created to give companies the option to focus on aspects outside of profit margins.
The status was also created to give consumers an option to choose purchasing goods or services from companies that are actively pursuing improvements in the environment, how they treat their employees, the community and society as a whole. This is particularly true in the case of certified B corporations, which require third-party vetting and verification of performance. Some states are now offering benefit status to limited liability corporations (LLCs).
B Corporations vs. Benefit Corporations
The goal of certified B corporations and benefit corporations is the same. Their creation was prompted by the desire to leverage the corporate structure for societal and environmental good, not just profits. They are different mainly in the establishment and enforcement of performance standards.
All certified B corporations are benefit corporations, but not all benefit corporations are certified B corporations. Their directives are the same, although specifics differ from company to company, but the certification and validation from a third party is what sets certified B corporations apart.
The major differences between the two are as follows:
Certified B corporations must achieve a specific minimum score on their B Impact Assessment. The B Impact Assessment is carried out by B Lab, the official issuer of B corporation certifications, and measures how well a company performed in several specific areas.
B Lab-issued certifications are available to all businesses, regardless of country of incorporation or industry. Benefit corporation status is only available in the 27 states that have created the status and legally recognized it.
It is much more expensive to get certified as a B corporation than it is to simply file to become a benefit corporation. Depending on the size of the corporation’s revenue, getting certified can cost up to $50,000 per year.
Getting Started With B Corps
B Lab offers a B Impact Assessment tool that companies can use to perform a self-assessment and see where they can improve. You can use this as the catalyst for becoming a benefit corporation with the ultimate goal of becoming a certified B corporation.
Registering as a benefit corporation or re-incorporating as a benefit corporation is a similar process to that of registering as a regular corporation. As of this writing, there are 27 states in which a business can incorporate as a benefit corporation, so the articles of incorporation must be filed in that state and a registered agent kept in that state. The benefit corporation is a relatively new corporate structure, and more states are expected to allow the structure in the next few years.
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