Key Takeaways

  • B Corp is a certification conferred by B Lab and is available to various business structures, including LLCs and partnerships, that meet rigorous standards of social and environmental performance.
  • Benefit Corporation is a distinct legal business structure authorized by state law and incorporates social benefit into its corporate purpose.
  • A company can be both a B Corp and a Benefit Corporation, but one is not a prerequisite for the other.
  • Benefit Corporations have legal obligations to pursue public benefits and report annually, while B Corps are held to voluntary certification standards.
  • Not all states allow formation as a Benefit Corporation, but certification as a B Corp is universally available.
  • Certification as a B Corp can be rescinded voluntarily; conversion to a Benefit Corporation involves legal restructuring and is not easily reversed.

Understanding Benefit Corporations vs B Corps is important when starting a corporation. These terms are often used interchangeably, without taking their remarkable differences into consideration. While the term "B Corp" refers to a third-party certification, "Benefit Corporation" refers to an actual legal business structure.

Becoming a B Corp

As long as it is certified by B Lab and the applicable fees are paid, any company that sets about to make a profit can become a B Corp.

As an example, Hanson Bridgett, LLP, a law firm, is a founding B Corp while being a limited liability partnership, rather than a corporation. Like any other B Corp, the company received a passing grade in the B Lab Impact Assessment, which scrutinized its operations and graded it based on an overall set of criteria. This analysis encompassed aspects such as the quality of its services and products, the support that the community receives from the business, and the organization's commitment to environmental concerns.

The concept behind a B Corp is not only to succeed in monetary terms but to also track the things that matter and provide regular reports on them.

Once certified, a B Corp will pay an annual membership fee, and the revenue raised from these fees will provide the funds for the activities undertaken by B Lab. This includes the ongoing evolution of the assessment tool, as well as auditing services from third parties that periodically certify B Corps.

In exchange for these dues, companies that are B Corps receive a number of benefits, including all the advantages of being part of a larger community of organizations dedicated to working towards a fairer economy. Ultimately, in the words of the B Lab Company, a B Corp represents "a better way to do business." It's about providing recognition for social responsibility and may be compared to fair trade or organic certification.

Requirements and Process for B Corp Certification

To become a B Corp, a business must complete the B Impact Assessment and receive a minimum verified score of 80 out of 200 points. This assessment evaluates five impact areas: Governance, Workers, Community, Environment, and Customers. Afterward, companies submit supporting documentation for review by B Lab.

The process typically includes:

  • Assessment submission and review
  • Phone interviews for clarification
  • Background checks
  • Public profile publication upon certification

Companies must update their assessment and recertify every three years to maintain their status. Certification fees are based on annual sales and typically range from a few hundred to several thousand dollars annually.

Greater Legal Protection From a Benefit Corporation Structure

A Benefit Corporation, on the other hand, is an actual type of corporation. It arose from the Benefit Corporation movement, as a number of small business owners were concerned that being certified as B Corps would not provide the same degree of legal protection as a business form recognized by the government would. In essence, the Benefit Corporation came into existence so that the B Corp goals could be built into the very foundation of a corporation.

When creating a Benefit Corporation, the legal documents utilized need to consider the impact of all key actions on stakeholders, rather than just on shareholders. All corporate laws are applicable to a Benefit Corporation, and management is required to do reporting by means of current third-party standards.

Benefit Corporations, as well as their financial supporters, are not entitled to the same tax benefits enjoyed by nonprofits. Traditional profits, on the other hand, are allowed.

Over and above satisfying the requirements of its shareholders, a Benefit Corporation has three extra legal attributes:

  • Accountability
  • Transparency
  • Purpose

In terms of accountability, a Benefit Corporation is the same as a B Corp, in that it must factor in the impact of all its activities on its customers, community, employees, and environment. With regards to transparency, it must collate an annual benefit report in which it provides an overview of its environmental and social performance. When it comes to purpose, a Benefit Corporation needs to provide some form of material benefit for the general public. Examples of this could include providing economic opportunities or promoting healthcare in the community.

Formation and Governance of a Benefit Corporation

To form a Benefit Corporation, a business must incorporate under applicable state statutes that recognize this entity type. This involves filing Articles of Incorporation that explicitly state the company’s public benefit purpose.

Governance responsibilities for Benefit Corporations include:

  • Considering the impact of decisions not only on shareholders but also on other stakeholders (e.g., employees, the community, and the environment).
  • Appointing a Benefit Director or Benefit Officer (in some states) to oversee the implementation of the benefit purpose.
  • Filing an annual benefit report using a third-party standard, which must be made public and sometimes submitted to the Secretary of State.

Some states also require a supermajority vote from shareholders to switch to or from Benefit Corporation status.

Differences and Similarities

It is clear that both Benefit Corporations and B Corps are noble designations. There are, however, a number of basic similarities and differences between them.

  • A B Corp certification is voluntary and can be discarded at any time. Becoming a Benefit Corporation, on the other hand, involves permanent changes to the company's structure.
  • Both types of certification have great value in attracting customers, employees, and investors.
  • Both designations are a great way for a company to differentiate itself from its competitors and demonstrate a genuine desire to give back to its community.
  • B Corps and Benefit Corporations both provide alternatives to the classic 501(c)(3).

It is important to bear in mind that not every state has approved Benefit Corporations yet. Several states currently have legislation pending in this regard.

The Benefit Corporation structure is valuable based on its own merits, regardless of whether a company decides to pursue certification. This structure also relates to B Corp certifications in various ways. Perhaps most importantly, the best way for a corporation to ensure that they meet the legal requirements for certification as a B Corp is to make use of the Benefit Corporation legal structure.

Benefit Corporation vs B Corp: Key Comparison Table

Feature Benefit Corporation (Legal) B Corp (Certification)
Type Legal business structure Third-party certification
Established by State statute B Lab (nonprofit)
Who can obtain For-profit corporations Any for-profit entity
Legal obligations Yes – embedded in governing docs No – voluntary compliance
State recognition Varies by jurisdiction Recognized by certification only
Annual reporting Required (statutory) Required (assessment and recertification)
Public benefit requirement Yes Yes (via assessment)
Conversion difficulty Legally binding, requires filings Certification can be dropped easily
Branding benefit Limited Use of B Corp logo and community

This comparison helps clarify the distinction for founders deciding between legal structuring and reputational certification.

Frequently Asked Questions

1. Can a company be both a B Corp and a Benefit Corporation?

Yes. A company can pursue B Corp certification while also registering as a Benefit Corporation if their state allows it.

2. Is a B Corp a legal entity like an LLC or corporation?

No. B Corp is a certification, not a legal structure. A company must first be a legal entity such as an LLC or corporation.

3. What’s the main legal advantage of being a Benefit Corporation?

Benefit Corporations have legal protections allowing directors to prioritize social/environmental goals over shareholder profit.

4. Do all states allow Benefit Corporations?

No. While many states have adopted Benefit Corporation statutes, some have not. Check your state’s specific laws.

5. How long does B Corp certification last?

B Corp certification lasts three years, after which the company must go through recertification with B Lab.

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