The Difference Between a Benefit Corporation and a (certified) B-Corp

I’m often asked:  What’s the difference between a benefit corporation and a B-Corp, are they the same thing?

No, these are not the same thing.  The benefit corporation is a legal structure available for incorporation in several states,[1] whereas a B-Corp is a certification granted by B-Labs, a Pennsylvania nonprofit corporation.  Think of benefit corporations as a state recognized type of company (like an LLC or nonprofit corporation) and B-Corps as traditional companies that have earned a socially responsible certification (like earning the LEED certification or Good Housekeeping’s “Seal of Approval”).  Ones the actual legal “person” and the other is the “sticker” the person can obtain if the qualifications are met.

And yes, a benefit corporation can become B-Corp certified.

Benefit Corporations

How to create a benefit corporation:  File articles of incorporation (or amend current articles) in a state authorizing the legal form.  Washington does not authorize Washington State benefit corporations (instead, our legislature authorized the social purpose corporation).

Benefits: Legal “cover” for officers and directors to make decisions that may negatively affect the bottom line; attract social investment capital due to legal form requiring consideration of benefits; limits personal liability to shareholders and management.

Draw-backs: Limited to the benefit corporation legal form.  A benefit corporation is subject to several administrative burdens including filing an annual benefit report, performing a yearly audit against a third-party standard, requiring officers and directors to take into account company stakeholders when making decisions, and potentially subject to an independent benefit director.[2]  Finally, this is a new and untested legal entity; therefore, the liability exposure to shareholders, officers, and directors has not yet been shaped by case law.

B-Corps

How to gain certification:  There are four main steps to gaining B-Corp certification.

  1. Your company must take the B Impact Assessment, which evaluates the impact your company has on its stakeholders. The company must achieve a score of 80 out of 200 points (points determined by business industry and number of employees) from the Impact Assessment.
  2. Your company must go through a Review with a B-Labs staff member. This Review is a chance for B-Labs to verify your company’s Impact Assessment materials and custom fit what might be best practices for your company’s situation.
  3. Your company’s current and future management, investors, and ownership must be legally bound to take into consideration the interest of company stakeholders.  This requirement is met through the language in the company’s organizing documents—articles of incorporation for corporations, certificate of formation for LLCs, etc.—and will vary depending on the state of incorporation.
  4. Pay a fee to B-Labs ranging from $500 for companies grossing under $2M to $25,000 for companies grossing over $100M.

After a company is certified as a B-Corp, it must agree to a random impact assessment audit by B-Labs.

Benefits: The B-Corp certification is well-known within the social impact space because the Impact Assessment is a standard to meet.  B-Labs has done an excellent job creating its standard and an even better job marketing its standard. Those who qualify are truly benefited from the market indicator of being a “B-Corp.” Furthermore, many B-Corps offer fellow B-Corps discounted products and services.  In addition, over 30 service providers offer their valuable services to B-Corps at a deep discount.

Draw-backs: Becoming a certified B-Corp likely means some changes to your legal structure. Not only that, but depending on your industry and growth it may be difficult to maintain the required standard.

For more information on B-Corp certification and benefit corporations, head over to B-Labs!

 

The article provided above is for general information purposes only and should not be relied on as specific legal advice. This article does not form an attorney-client relationship. If you have any questions about this article, please feel free to contact Peter J. Smith at peter@apexlg.com

 


[1] California, New York, Maryland, Vermont, Hawaii, Virginia, New Jersey, and Louisiana.  For more information, visit: http://www.benefitcorp.net/state-by-state-legislative-status.

[2] Exact requirements depend on the jurisdiction.  For more information see: http://www.bcorporation.net/become/official

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