Can a company generate profit and support social causes? Can a company pay stockholders and commit to improving the environment or supporting childhood education? Yes, and you have likely encountered such companies! Ben & Jerry’s, Allbirds, Cabot, Patagonia, and Eileen Fisher are just a few popular companies that have been certified as organizations committed to improving society.[1]
Many organizations utilize one of two options (or both) to signal that they have a socially-minded mission and are acting with the goal of bettering society: benefit corporations and B corps. The two sound very similar and are often confused for that reason. However, benefit corporations and B corps differ in many ways that organizations should consider.
Benefit Corporation
A benefit corporation is a relatively new legal entity that has become popular in the past few years. A benefit corporation is a legally recognized entity that is established by filing with the state, just as an organization would file to establish an LLC or a corporation, for example. Benefit corporations are unique in that they empower the organization to consider social movements and causes in the course of decision-making, as opposed to focusing just on the interests of profit generation and dividend disbursement.
As benefit corporations are legally recognized organizations, the state imposes certain requirements on benefit corporations. The organization must support a public benefit, such as a charitable, cultural, educational, environmental, scientific improvement, amongst other public benefit options.[2] In addition, in their decision-making process, directors must consider how to benefit both stockholders and the interests of their chosen public benefit as well as society at large.[3] Benefit corporations are required to publish statements that summarize their charitable efforts in relation to their chosen public benefit.[4] Stockholders are able to sue directors who do not weigh societal and public benefits with the interests of stockholders and profits.[5] Finally, benefit corporations are not eligible for federal tax exempt status. Each state does have specific requirements for benefit corporations, and interested organizations are encouraged to further research their chosen state.[6]
As benefit corporations are fairly new, many states have not yet adopted legislation recognizing benefit corporations. Only about thirty states recognize benefit corporations, while many other states are considering such legislation. Michigan currently does not recognize benefit corporations, meaning that a Michigan-based organization interesting in becoming a benefit corporation would need to file in another state. The practice of filing in another state is not uncommon, as many corporations tend to file in Delaware, regardless of their physical location.
B Corp
A B Corp is an organization that has been certified by a third party organization called B Lab, verifying that the organization operates with the goal of improving society. Patagonia is one such organization that has achieved B Corp certification. A B Corp is not the same as a benefit corporation. Whereas a benefit corporation is recognized by the government, a B Corp is a stamp of approval that signals an organization’s mission but by itself does not change an organization’s legal requirements.
The B Corp Declaration of Independence summarizes the goals of certified organizations:
We
envision a global economy that uses business as a force for good.
This
economy is comprised of a new type of corporation - the B Corporation -
Which is purpose-driven and creates benefit for all stakeholders, not just shareholders.
As B
Corporations and leaders of this emerging economy, we believe:
·
That
we must be the change we seek in the world.
·
That
all business ought to be conducted as if people and place mattered.
·
That,
through their products, practices, and profits, businesses should aspire to do
no harm and benefit all.
·
To
do so requires that we act with the understanding that we are each dependent
upon another and thus responsible for each other and future generations.[7]
An
organization that believes its mission aims to improve society may apply for
certification from B Lab by completing an assessment and meeting certain
structural requirements. Once approved, the organization will be expected to be
in compliance with B Lab’s requirements, such as incorporating specific
language into governing documents, and becoming a benefit corporation (or
following a similar structure if the organization’s state does not recognize
benefit corporations).[8]
B Lab requires that the organization is in existence for at least a year before
applying for certification, which means that startups will not immediately be
eligible.[9]
Considerations for Small Businesses
Small
businesses should weigh the potential benefits of benefit corporation or B Corp
status with the potential drawbacks of additional administrative work and
additional compliance. Small businesses may benefit from the signaling effect
of benefit corporations or B Corp status; consumers and investors know that the
organization is committed societal improvement. Consumers are likely to
appreciate and trust socially committed organizations, and therefore seek out
such organizations for their shopping and consumption needs. In addition,
investors may value the simultaneous profit generation and public benefit
commitment. Small businesses may also attract enthusiastic, engaged employees
because they are committed to the public benefit.
However, small businesses should also be aware of potential disadvantages associated with benefit corporations and B Corp status. Organizations will be required to publish information beyond that which other entities are required to publish; this may be an additional administrative burden or be considered intrusive. In addition, stockholders have further opportunities to sue directors (regarding balancing the interests of the public benefit and the stockholders), subjecting the organization to the prospect of extra litigation. Further, as benefit corporations are new entities, states have not yet fully developed accompanying law, which can make navigating the waters somewhat uncertain. Finally, new businesses that have not operated for more than a year are not eligible for B Corp certification, and those businesses that are eligible must pay fees to maintain B Lab certification.[10]
Small businesses can benefit from the recognition and modified fiduciary responsibilities associated with benefit corporations, but small businesses should also consider timing. When does it make sense to file to become a benefit corporation or B Corp certification? Can the business support the administrative requirements and fees? Is the benefit corporation route the only way to signal to consumers and investors that the company is interested in societal improvement? What makes sense for your business?
[1] I
feel like this is not a catchy intro so I’m happy to make changes!
[2] https://www.cooleygo.com/delaware-public-benefit-corporation-now-what/
[3] https://www.cooleygo.com/delaware-public-benefit-corporation-now-what/
[4] https://www.cooleygo.com/delaware-public-benefit-corporation-now-what/
[5] https://www.cooleygo.com/delaware-public-benefit-corporation-now-what/
[6] https://www.upcounsel.com/b-corp-states;
https://benefitcorp.net/sites/default/files/Benefit%20Corporations%20Chart.pdf
[7] https://bcorporation.net/about-b-corps
[8] https://bcorporation.net/certification/legal-requirements
[9] https://bcorporation.net/certification/pending-b-corps
[10] https://bcorporation.net/node/39535
https://pixabay.com/photos/search/save%20nature/
By; Sarah Krosnick
[1] I
feel like this is not a catchy intro so I’m happy to make changes!
[2] https://www.cooleygo.com/delaware-public-benefit-corporation-now-what/
[3] https://www.cooleygo.com/delaware-public-benefit-corporation-now-what/
[4] https://www.cooleygo.com/delaware-public-benefit-corporation-now-what/
[5] https://www.cooleygo.com/delaware-public-benefit-corporation-now-what/
[6] https://www.upcounsel.com/b-corp-states;
https://benefitcorp.net/sites/default/files/Benefit%20Corporations%20Chart.pdf
[7] https://bcorporation.net/about-b-corps
[8] https://bcorporation.net/certification/legal-requirements
[9] https://bcorporation.net/certification/pending-b-corps
[10] https://bcorporation.net/node/39535