When most businesses think about incorporating, they consider S corps, C corps or LLCs. But there’s an emerging alternative for business owners who want to tie their corporate goals to not just finances, but societal good.
The B Corp, officially called Benefit Corporation, is a legal structure that requires businesses to not only generate profits but also create social and environmental benefits.
Starting with Maryland in 2010, eight U.S. states now offer the B Corp structure and several more are considering legislation to adopt it. (A nonprofit called B Lab, which advocates for B Corp laws, also allows any business to be voluntarily certified as a B Corp.)
Some states have also adopted other similar types of corporate structures, including flexible purpose companies (FlexC) and low-profit LLCs (L3Cs). Check out this slideshow by Harvard adjunct professor Kyle Westaway to learn more about these different structures.)
Under the state laws, B Corps must include social and environmental goals in their bylaws and put out an annual report that explains how well they’ve performed those goals. It’s a way to ensure that the business is just as committed to generating social and environmental good as it is to generating profits.
As the B Corp structure gets more acceptance, more businesses are using it to show their commitment to environmental and social strong practices. Outdoor apparel company Patagonia incorporated as a B Corp in California early this year. Read this Wall Street Journal piece about several other companies that have as well.
Becoming a B Corp. offers several potential benefits to businesses that care about sustainable business practices. Here are a few to consider:
- Walking the talk. Being a B Corp. is another way to show your customers your genuine commitment to ethical business practices. Not only are you promising, but your legal structure requires it.
- Continuity of commitment. Once you’ve incorporated as a B Corp., you and future owners of your business will be bound to following the rules. It’s a way to ensure the commitment you’ve made to sustainable practices extends well into the future
- Standing out. Businesses with a B Corp structure stand out from competitors by showing a higher level of commitment to environmental or social responsibility.
All said, however, not everyone is convinced that B Corps are worth it. Environmental and social goals can certainly be attained without the B Corp structure. Some critics also worry how B Corps will be viewed by potential investors who might be looking at the financial implications of being a B corp.
What do you think about B Corps? Have you considered a B Corp structure for your business, or would you?
B Corp Photo via Shutterstock
I love the idea of any organization pursuing environmental and social goals. What I don’t get is how those goals are defined.
Does a company that makes catalytic converters help because they are required for a car to run on unleaded gas? Does Ben & Jerry’s count because they give a % of profits to charity or do they not count because their product contributes to obesity? How about GreenPeace or groups which have been known to destroy private property in the fight for the environment?
Even if you can come up with a standard definition that most can agree on I’m not sure I see the benefit of having a separate legal structure. Does it provide anything to the business owners, employees, customers, or public at large that you can’t get from one of the structures we already have?
Kelly – thanks for the article on B Corporations. John – I would like to try to answer your questions if I may as they are excellent questions. As the founder of a Certified B Corp that has intentions of incorporating as a Benefit Corporation in January (it was just approved in Illinois), here is my perspective:
1. Clear goals and standards. Yes – the advantage of B Corporations is that the standards are very clear and specific. There are three certifying organizations. I am certified via B Lab. If you go to http://www.bcorporation.net, you can see the impact assessment on the website. It consists of 200 points. A company must get a minimum of 80 to be certified, plus as mentioned in the article, change the operating agreement. Each company must get re-certified every two years, and 20% of all B Corps get audited each year. The second point about the standards is that they are transparent. If you look up my company (www.compassxstrategy.com) on the B Corp website, you can see my score, by category. No hiding.
2. As for why this is necessary – by making clear and transparent my company’s intentions to pursue profit while also pursuing positive impact, I make it easier to have a conversation with investors. They can be assured that I am not “being trendy” in my mission and will undo it at the first sign of difficulty. For people that want to invest in a socially responsible company, they can be assured that the company is committed to that goal. For the company’s leadership, they know that people that invest in their company understand their mission and have a similar definition of what success looks like. No surprises.
Research has shown that companies that take care of all their stakeholders (employees, suppliers, community, planet, and of course shareholders) actually do a better job of delivering returns for their shareholders over the long term. However in our “profit at all costs” quarterly approach, business leaders are not able to pursue this long term approach. B Corporations enable that long term view.
Great questions! I love that this is being discussed.
Founder and Chief Strategist
Thanks for clarifying the points of concern Nancy. I’m in the process of evaluating the best corporate structure for my clothing company, which is focused on creating clothing with responsible threads, and then giving a portion of profits to help protect and restore our oceans, lakes, rivers and streams. Your information is some of the best advice I’ve found. I look forward to joining you and others in this new way of doing business.
Noel – glad it was helpful. Feel free reach out to me if you have any questions about it. email@example.com. Your company sounds amazing. I wish you the best of luck!