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B Corp


Balancing Profit and Purpose: The B Corp and the Benefit Corporation

Today’s blog entry seeks to clarify the confusion between “B Corp” and “benefit corporation”, which terms are commonly and incorrectly used interchangeably, and speak to the features and requirements of both. 

It all started with B Lab, a nonprofit organization responsible for (a) writing the benefit corporation legislation that has now been enacted by 26 states and D.C., and (b) overseeing and administering the private “B Corp” certification process.  A benefit corporation is a type of entity under state law, and B Corp certification is a private certification conferred by B Lab on business entities that apply for such certification. 

As of August 2014, B Corp certification has grown into a community of 1,052 B Corp entities in 34 countries (739 in the United States alone), spanning 60 industries, approximately 20 of which are in the U.S. legal services industry.  The benefit corporation is a recent phenomenon, first appearing in 2010 in Maryland.  Companies like Dogeared, EO Products and Patagonia (the first benefit corporation in California), are both certified B Corps and benefit corporations.

Here are some of the key characteristics of the B Corp and benefit corporation:

Becoming a Certified B Corp
  • Any type of for-profit entity can apply to B Lab to become a certified B Corp.
  • To become a B Corp, one must (a) complete the “B Impact Assessment Survey” and score at least 80/200, (b) sign a Term Sheet and Declaration of Independence, and (c) if required, amend its governing documents to include the “B Corp Legal Framework” which requires that the company consider the impact of its decisions not only on shareholders but also its employees, customers, suppliers, community and the environment.
  • B Corp certification is for a two-year term and subject to an annual certification fee ranging from $500 – $25,000 annually (based on the B Corp’s annual sales).
  • B Corp certification is similar to a license and may be terminated.
Becoming a Benefit Corporation
  • A benefit corporation is legal entity and specific type of corporation that may only be formed in a state (including California) that has enacted legislation authorizing its creation.
  • Every benefit corporation is required by law to have a general or specific (optional) public benefit purpose.
  •  An existing corporation can become a benefit corporation by amending its Articles of Incorporation and Bylaws.
  • A change to or from a benefit corporation is a corporate entity change that requires 2/3 shareholder approval.  Any shareholders who vote against a conversion from a corporation to a benefit corporation can force the corporation to purchase their shares at fair market value.
Expansion of Fiduciary Duties 
Traditionally, a director’s and officer’s obligation is to manage the corporation to provide a return to its investors.

The B Corp certification attempts to modify the fiduciary duties of the governing body and officers by requiring a company’s governing documents to state that they must consider multiple stakeholders, not just shareholders.

The benefit corporation creates a new legal framework that requires directors to consider “shareholders, workers, suppliers, customers, the community and society at large, the local and global environment, and the short and long terms interests of the benefit corporation”.  Likewise, the officers must consider the impacts of their actions on the same group.  Therefore, in addition to traditional responsibilities, a director or officer of a benefit corporation must also consider the general or specific public benefit of his or her actions.

Benefit Enforcement Proceedings 
A benefit corporation is subject to a “benefit enforcement proceeding,” a unique cause of action asking the court for an equitable remedy to require the benefit corporation to pursue its general or specific public benefit.  A benefit enforcement proceeding may only be brought by the corporation itself, a shareholder or director, and persons specified in the corporation’s articles or bylaws as beneficiaries of the corporation’s purpose.  The benefit corporation cannot be found liable for monetary damages; however, if the court finds that the benefit corporation’s failure to comply with the Benefit Corporation Law was without justification, the court may award the plaintiff its reasonable attorneys’ fees and costs.

Reporting & Audits 
B Lab makes the results of each B Corp’s “B Impact Report” publicly available on its website, and B Lab randomly audits 20% of all B Corps over the two-year certification period.

The benefit corporation law imposes reporting requirements by requiring a benefit corporation to prepare a special annual report (called a “benefit report”), which includes information such as how it pursued its general or specific public benefit, any circumstances that hindered the pursuit of a general or any specific public benefit, and an assessment of its social and environmental performance.  The benefit report must be made available to the public on its website, if any, or otherwise a copy must be provided without charge to anyone requesting it.

Choosing a Path 
Each company has to consider how best to achieve its goals.  Is it considering becoming certified as a B Corp or becoming a benefit corporation because it is the right thing to do?  For positive publicity?  Because customers are giving preferential treatment to B Corps and/or benefit corporations?  Consider which public benefits the company pursues or wants to pursue; if they are already part of the company’s culture, and all owners agree, then the benefit corporation route makes sense and, if the company is already a corporation, relatively easy to achieve.  Take a look at annual reports for the past few years--does the company already publicize the benefits it promotes?  If so, then publishing annual reports conforming with the public benefit law should not impose a burden.  If the company is not a corporation, check with its attorneys and accountants regarding the impact of conversion.  If the company is considering B Lab certification, take a look at the B Impact Assessment Survey to get a sense if the company’s current practices qualify for B Corp certification, and check the license fee schedule to determine the bi-annual expense.  If the company changes direction and abandons its public benefit purpose, it is easier to let the B Corp certification lapse than it is to convert from a benefit corporation to a standard corporation.
Be sure to do your homework when deciding which path is best for your company, and don't forget to enjoy the journey.