Benefit Corporation vs B Corp: Everything You Need to Know
While the term "B Corp" refers to a third-party certification, "Benefit Corporation" refers to an actual legal business structure.4 min read
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.
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:
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.
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.
If you need help with B Corps and Benefit Corporations, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.