Wait… there’s a difference? Benefit Corporations versus B-Corp Certification

Event today, there is still a flood of confusion between Benefit Corporations and B-Corporations (colloquially known as B-Corps). We wanted to offer some guidance on the subject to clarify the difference between the two.

The Benefit of Benefit Corporations

A Benefit Corporation is a type of a legal entity like a sole proprietorship, LLC or corporation. As of 2015, 31 states have benefit corporation laws while 5 others have pending pieces of legislation. The nuances of each state’s benefit corporation law is enough to make your head spin. What is acceptable in one state may be totally unacceptable in another. For example, in Delaware and Colorado, benefit companies may have a general public purpose that positively impacts either society or the environment while the majority of states, like California, require a positive impact to both society and the environment.

Despite the differences between the various benefit corporation laws across the country, there are a couple of things that remain fixed. At their core, all benefit corporations or benefit LLCs are required to have a general public benefit purpose. As prefaced earlier, most states legislate this to be making a positive impact on society and the environment. The benefit company may also elect to have a specific public benefit, which can range anywhere from promoting job creation in traditionally underdeveloped communities to fostering arts and sciences.

In order to effectuate both the general and specific public benefit purposes, benefit corporation laws mandate that company directors, officers or members consider non-financial interests in making decisions. Theses non-financial interests are often referred to as “stakeholders”. You can think of stakeholders as the different variables that account for the bottoms line of the general and specific public benefit. Example of standard stakeholders include (1) shareholders, (2) employees, (3) customers, (4) the local community, (5) the local and global environment, (6) short term and long term interests of the company and (7) the ability of the company to accomplish its general and specific benefit purpose. Based on these stakeholders and company decisions, benefit companies must issue an annual report detailing their overall impacts using a third party standard.

The Basis of Being a B-Corp

In contrast, becoming a B-Corp isn’t like incorporating a corporation or organizing an LLC. Virtually any business entity could become a B-Corp! It’s a certification process rather than a formal legal structure. Notably, being a B-Corp often works in conjunction with being a Benefit Corporation because B Labs (the nonprofit that runs B-Corps) is one of the most common third party standard used in Benefit Corporation’s annual reports.

There are three basic requirements to become a certified B-Corp: (1) scoring at least an 80 on the B-Corp Assessment (Measure What Matters | B Impact Assessment), (2) having a legitimate legal structure in place (i.e. LLC, corporation, etc.) and (3) taking the pledge of interdependence & paying the requisite dues.

If you are interested in becoming a B-Corp, the best place to start is on B Lab’s Website (http://bimpactassessment.net/) and by taking the assessment. You have the option of taking the quick or full assessment. We recommend looking at the quick assessment to get a general sense of B-Corp best practices and then when you have a better idea of your policies take the full assessment. Both assessments are free tools and will allow you to see what you need to meet the requisite B-Corp score of 80 points. There are five main areas of focus: (1) Environment, (2) Workers, (3) Customers, (4) Community, and (5) Governance.

The next step is to have a legal entity in place. This largely depends on whether you have already formed your corporate structure or not. If you already have a corporate structure in place, you may need to amend your governing documents or adopt benefit corporation status to meet the legal requirement for certification for your state of incorporation and corporate structure. An attorney can help you with this step of the process.

Once you have completed the B-Corp assessment and determined the best legal structure for you business, you will sign the B Corp Declaration of Interdependence and pledge! A fee is also accompanied with the certification process. The amount depends on your company’s annual sales (https://www.bcorporation.net/bec…).

If you have any questions or are interested in becoming either a B-Corp or Benefit Corporation, please email us at info@sustainable-lawyer.com or call (310) 883-7923.

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