Key Takeaways

  • A C Corporation is a legal business structure recognized under state law and taxed separately from its owners.
  • A B Corporation can mean two things: a Benefit Corporation (a legal entity) or a Certified B Corp (a private certification).
  • C Corporations prioritize shareholder profit, while B Corporations balance profit with social and environmental goals.
  • B Corporations must meet accountability, transparency, and performance standards, while C Corporations focus on compliance and profitability.
  • Choosing between a C Corporation vs B Corporation depends on tax considerations, investor goals, and mission alignment.

What's the difference between a C corporation vs B corporation? The abbreviation B Corporation is not restricted to a benefit corporation entity. The certification as a B Corporation is a label for businesses who strive to improve environmental and social problems. This certification looks at the entire business model such as employees, governance, suppliers, and social and environmental impacts to determine B corporation certification.

The rating is on a scale from 0 to 200, and a company needs at least an 80 to receive certification. Two independent Standards Advisory Councils made up of social entrepreneurs and thought leaders determine the certification standards. This certification is independent and holds businesses accountable for their public good pursuits.

Advantages of B Corporations

  • As a B corporation, there are many discounts to take advantage of including Intuit and Salesforce, which offsets the certification costs within the first months.
  • Research supports the idea that consumers are more likely to believe a company's claims when backed by a third party. As B corporations increase in number, consumers are more likely to buy from these companies. Large companies like Patagonia and Seventh Generation are already certified.
  • Investors actively seek out responsible companies and knowing companies are B certified requires high standards of ethics and transparency. This certification helps to show investors an independent analysis.
  • By strengthening the ties with groups of communities that support the business, customers, and employees, there's greater profits. By maintaining B certification, the company is more than likely to be more profitable.
  • The B Impact Assessment covers community involvement, corporate governance, supply chain, and sustainability. This assessment gives you a summary of social and environmental initiatives.
  • The B Impact Assessment has to be passed every two years and will hold you accountable. The assessment has a document called Improve Your Score where the company is given recommendations on how to be more responsible.
  • B Corp certification shows that your company takes values seriously. Universities like Columbia and Yale even forgive student loans to MBA graduates who work for B Corps.

Disadvantages of B Corporations

  • A B corporation is taxed as a business which isn't necessarily beneficial to a B Corp. These corporations have no tax benefits over traditional businesses.
  • Unlike LLCs and S Corps, B Corps are scrutinized for their policies and practices to ensure they uphold their ethical standards.
  • A B Corp has a lot of rules of what you can't do, but there's no clear idea of what you will get in return. To find what is good about benefit corporations, it's best to ask someone who is already in a B Corp.

C Corporations Explained

A C Corporation is the most common corporate structure in the United States. It is a separate legal entity from its owners, meaning shareholders have limited liability for the company’s debts and obligations. Unlike B Corporations, which must demonstrate social and environmental impact, a C Corporation is legally required to prioritize shareholder returns.

Key features include:

  • Taxation: Subject to corporate income tax, and shareholders also pay taxes on dividends (“double taxation”).
  • Ownership flexibility: Unlimited shareholders, including foreign investors, making it attractive for raising capital.
  • Perpetual existence: The corporation continues even if shareholders or directors change.
  • Investor appeal: Venture capitalists and institutional investors often prefer C Corporations due to established legal precedents and growth potential.

Advantages of Incorporation

  • Creating a B Corp certification can help owners raise money from investors who are like-minded and be different in a marketplace. Several investors look for B Corps and going this way can be beneficial.
  • If your business mission is important, your business can be incorporated to protect your mission from investors with different intentions that could harm your business.

Key Differences: C Corporation vs B Corporation

While both entities share corporate governance structures like boards of directors and shareholder protections, their purposes differ:

  • Purpose:
    • C Corporation: Focuses on maximizing shareholder value.
    • B Corporation: Seeks profit while also pursuing social or environmental missions.
  • Legal Framework:
    • C Corporation: Governed by state corporate law and IRS tax code.
    • Benefit Corporation (B Corp legal entity): Formed under state law with a legal duty to balance profit and purpose.
  • Certification:
    • C Corporation: No external certification is required.
    • Certified B Corp: Voluntary certification from B Lab requiring performance assessments and ongoing audits.
  • Investor Relations:
    • C Corporation: Appeals to traditional investors who prioritize financial returns.
    • B Corporation: Attracts impact investors who value measurable social outcomes.

Disadvantages of Incorporation

  • Incorporating a new business can be a lot of work. Lawyers can file the paperwork and investors know the business structure which is a proven workable structure.
  • Some people are advised by their lawyers to incorporate as a C corporation instead of a B corporation. It will be easier to incorporate as a C corporation and figure out how to make the business work.

Benefit Corporation vs B Corporation Certification

  • Benefit corporation protects your mission by law. It offers a safeguard to consider shareholders unlike B Corp certification.
  • If you don't have the resources to go through B Corp certification, you can still have a commitment with a benefit corporation.
  • Becoming a benefit corporation is a step towards the B Corp certification as it takes care of the articles of incorporation.
  • Reincorporating as a benefit corporation is good if you think investors can threaten your mission. There's not much to lose, and it takes no more than a day.
  • Take the B Corp certification assessment to see if it's a good fit. The assessment shows how you compare to other peers in different areas; if you score higher than 80, you're qualified for certification.

If you need help with understanding a C corporation vs a B corporation, 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, Menlo Ventures, and Airbnb.

Which Structure Should You Choose?

The decision between forming a C Corporation vs B Corporation depends on your business priorities:

  • Choose a C Corporation if:
    • You plan to seek venture capital or go public.
    • Your primary focus is scaling rapidly and maximizing shareholder returns.
    • You want the most widely recognized and tested corporate structure.
  • Choose a B Corporation if:
    • Your mission includes environmental sustainability or social impact.
    • You want to attract impact investors or socially conscious consumers.
    • You’re committed to transparency and accountability through third-party certification.

Many companies start as C Corporations and later pursue B Corp certification to signal their commitment to stakeholders. This hybrid approach allows them to benefit from traditional corporate advantages while distinguishing themselves as mission-driven organizations.

Frequently Asked Questions

  1. Is a B Corporation a legal entity like a C Corporation?
    Not always. A “Benefit Corporation” is a legal structure under state law, while “Certified B Corp” is a private certification.
  2. Do B Corporations get tax benefits?
    No. B Corporations are taxed the same as traditional C Corporations unless they elect S Corporation status.
  3. Can a C Corporation become a B Corporation?
    Yes. A C Corporation can amend its governing documents to become a Benefit Corporation or pursue B Lab certification.
  4. Which is better for raising capital: C Corp or B Corp?
    C Corporations generally have more appeal to venture capital and institutional investors, though B Corps attract impact investors.
  5. What is the main difference between C Corporation vs B Corporation?
    C Corporations focus on profit for shareholders, while B Corporations balance profit with positive social and environmental impact.

If you need help identifying what is c corporation vs b corporation, 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, Menlo Ventures, and Airbnb.