Many companies are interested in incorporating a social or environmental purpose into their company’s goals, and the B Corp designation can be a great option. Additionally, B Corps can be a great alternative to non-profit formation where the primary purpose of the new entity is profit generation, compared to a mission of providing services for a charitable purpose under 501(c)(3) of the Internal Revenue Code. The term “Benefit Corporation” is often used interchangeably with the phrase “B Corporation” (or “B Corp”). The two concepts are not the same, however, and are explained in more detail, below.
What is a B Corp?
A B Corporation (or B Corp) is a trademarked certification offered by a nonprofit organization called B Lab (which also is a key supporter of benefit corporation laws nationwide). There is a growing community of more than 1,400 Certified B Corps from 42 countries and over 120 industries working together toward the goal of redefining success in business.
Why Become a Certified B Corp?
B Corp certification can be used to meet the requirements for a third-party assessment, and the evaluation issued by B Lab can be used in the preparing the annual benefit report to shareholders. B Corp certification is not required for benefit corporations, however, and it is not the only third-party standard currently available to benefit corporations for meeting the reporting requirements.
Additionally, the benefits of becoming a B Corp are as follows:
- Attract and Engage Talent- B Corp certification demonstrates to employees that their company walks its talk and gives them tools to set goals for continuous improvement.
- Lead a Movement- Individually, B Corps meet the highest standards of verified social and environmental performance, public transparency, and legal accountability, and aspire to use the power of markets to solve social and environmental problems.
- Differentiate from Pretenders- 90% of Americans say that companies must not only say a product or service is beneficial, but they need to prove it.
- Attract Investors- Entrepreneurs want to command higher valuations, achieve greater impact, and build companies to last at scale with integrity. The B Corp legal and performance standards help ensure that B Corps and their investors meet all three of these objectives.
- Generate Press-B Lab can help tell every B Corps’ story
- Save Money and Access Services- Through access to over 80 service partnerships, B Corps have enjoyed more than $5 Million in savings and accessed technology, talent, and expertise for their businesses.
- Protect Mission- The value of meeting the legal requirement for B Corp certification is that it bakes sustainability into the DNA of your company as it grows, brings in outside capital, or plans succession, ensuring that your mission can better survive new management, new investors, or even new ownership.
How Does My Business Become a B Corp?
To qualify for B Corp certification, a company must score high enough on an impact assessment survey which measures social and environmental performance and other aspects of corporate accountability. Once certified, a company is subject to audit by B Lab and must pay an annual certification fee based on annual sales revenue. Traditional corporations, limited liability companies, social purpose corporations, and other business entities may qualify. In other words, it is not necessary to be a benefit corporation.
What are the documentation requirements?
Our philosophy and interpretation of the B Corp certification requirements is that you must act like a B corporation (the “performance step”), then you document your actions (the “legal step”), and then you promise to continue to maintain these actions into the future (the “making it official step”). Our law office can provide guidance on one or all of these steps.
Performance Requirements to become a B-Corporation – for full details and to apply visit their page.
1. Take the B Impact Assessment
2. Schedule an Assessment Review and Submit Supporting Documentation
3. Complete the Assessment Review
4. Submit Additional Documentation
5. Complete a Disclosure Questionnaire
6. Background Checks
7. Certification Evaluation
What is a Benefit Corporation?
Benefit corporations (B Corps) in California allow and protect for-profit entities to pursue goals with a positive social or environmental impact alongside of the traditional corporate purpose of maximizing profit. See the CA Corporations Code for more information. A B Corp’s corporate model is based on three distinct qualities – purpose, accountability, and transparency.
Social entrepreneurs who not only want to build a strong business, but also protect against detrimental actions that may maximize shareholder interests at the expense of society or the environment, are allowed and even encouraged to build their business on the B Corp model. B Corps advocate considering all interests at stake, including the environment and global community. The B Corp must uphold a purpose of creating a general public benefit that has a material positive impact on society or the environment.
Similarly, the board of directors and the B Corp’s officers are required to uphold this purpose by being accountable to all. An action of the board must consider the impact on shareholders, customers, suppliers, communities, the environment, and the corporation. Laws specific to benefit corporations protect corporate directors and shareholders from shareholder lawsuits if the board decides to take an action that prioritizes society and the environment over maximum profits.
A B Corp remains accountable and transparent in its purpose through annual reporting. This annual reporting, as described above, requires third party standards to measure the B Corp’s social and environmental performance.
Under Assembly Bill 361, California became one of several states in the nation to allow new business incorporation of benefit corporations. B Labs helped form the first pieces of legislation for California and other states and it remains the best resource for certification in California. As a note, B Labs suggests new companies wait for at least six months of revenue generation or operations before they apply to for their assessment.
What are some of the social and environmental benefits included under this California Law?
The CA Corporations Code provides a definition for “specific public benefits,” which includes:
- Providing low-income or underserved individuals or communities with beneficial products or services;
- Promoting economic opportunity for individuals or communities beyond the creation of jobs in the ordinary course of business;
- Preserving the environment;
- Improving human health;
- Promoting the arts, sciences, or advancement of knowledge;
- Increasing the flow of capital to entities with a public benefit purpose; or
- The accomplishment of any other particular benefit for society or the environment.
How do I get started?
A new or existing corporation can become a public benefit corporation. The first step is to understand the limitations and benefits of forming a B corporation and to make sure that this type of corporation matches up with your long-term vision for your company. Once this is determined, then specific articles of incorporation are filed with the Secretary of State’s office and the governing documents for the corporation are drafted to make sure the company will be in compliance with the law while reflecting the company’s public benefit purpose.
Contact us to learn more!