What is a Benefit Corporation?
This article discusses benefit corporations, the new type of business entity gaining traction and popularity among mission-driven entrepreneurs and businesses.
A benefit corporation, or B – corporation, is a new type of business entity gaining traction and popularity among mission-driven entrepreneurs and businesses. A benefit corporation is a for-profit corporation with the same protections and permissions as a traditional corporate but with modified corporate governance provisions. For example, benefit corporations still elect C or S Corp tax status. However, this new governance model creates a solid foundation for long-term mission alignment and value creation by making additional commitments to higher standards of purpose, accountability, and transparency.
- Purpose: Benefit corporations commit to creating public benefit and sustainable value in addition to generating profit. This sustainability is an integral part of their value proposition.
- Accountability: Benefit corporations are committed to considering the company’s impact on society and the environment in order to create long-term stakeholder value for all stakeholders.
- Transparency: Benefit corporations are required to regularly report to shareholders, and in most states report publically, on how the company is considering and balancing these interests and the extent that they have created stakeholder value or public benefit.
Benefit Corporation Perks
Traditional corporate law requires directors to use profit maximization as the primary—if not only—lens in decision-making. Many now see this as a hurdle in creating long-term value for all stakeholders, including the shareholders themselves. Benefit corporations are a response to this narrow model of traditional corporate law. While they enjoy all the benefits and precedents of a traditional business corporation, benefit corporations have the flexibility and protection to consider all stakeholders and make decisions that take into account a long-term view. Moreover, benefit corporation status protects a company’s mission as a business undergoes capital raises, leadership changes, and an even through an IPO.
A Growing Movement
Companies interested in becoming a benefit corporation can incorporate in a state that recognizes benefit corporations or amend their existing articles to adopt benefit corporation status. Currently, 31 jurisdictions recognize the benefit corporation status, including Delaware, where benefit corporations are called “Public Benefit Corporations” or “PBCs.” There are over 3,000 benefit corporations nationwide. This list includes well-known names such as Patagonia, Method Home Products, Altschool, Laureate, Klean Kanteen, and Kickstarter.
Corporate Form vs. Certification
Benefit corporations, often referred to as “b corps,” are sometimes confused with Certified B Corporations. A benefit corporation is a legal business entity form administered by the state. A Certified B Corporation is a company certified by B Lab, a nonprofit that certifies a company's social and environmental performance using the B Impact Assessment. To become a Certified B Corporation, a company must (1) meet the social and environmental performance standard and obtain a verified score on the B Impact Assessment, (2) be transparent about that impact by having a public profile on bcorporation.net, and (3) fulfill the legal requirement to formalize a commitment to consider stakeholders alongside shareholders. Benefit corporations are not required to obtain B Corporation certification, and for-profit companies of any geographic location or structure (LLCs, partnerships, traditional corporations, etc.) may pursue B Corp certification. In addition to the B Corp certification, B Lab offers a suite of marketing and support services, including a free tool that helps benefit corporations create their required benefit report.