Choose Your Business Formation: What's a B Corp?

What is a B Corp?

Before we even dive into what a “B corp” is, we need to talk about terminology. Like a C corps or an S corps, people are often referring to a “benefit corporation” when they say “B corp.” But B corp is actually different from a benefit corporation, although they’re related.

A benefit corporation is…

A benefit corporation is a type of formal legal business structure, like a C corp or S corp. In addition to making a profit, shareholders hold benefit corporations responsible to contributing in some way to the public good. In some states, benefit corporations are required to produce proof that they’re contributing to the public good. They’re taxed the same way as C corps, which means they’re subject to double taxation.

Benefit corporation is the newest designated of corporation in the United States. The first state to allow B corps designation was Maryland in 2010. In 2019, there are 31 states that now allow it.
is a certification that tells you something about the corporation. Think like the “USDA Organic” stamp or “Fair Trade.” It tells you that this company has undergone a more scrupulous process to make sure that it’s doing the good that it says it’s doing.

B Corp certification comes from a non-profit called B Lab. And while it used to be that any type of corporation could also become certified as a B corps, now B Lab requires that all Certified B Corps become benefit corporations if that option is available in their state.

A B Corp is…

So what’s a B Corp? The best way to think of it
Now let’s take a closer look at how benefit corporations and B Corps work, both separately and together.

How do benefit corporations and B Corps work?

Traditionally, the goal of a corporation is to bring the maximum profit to the shareholders. But in a benefit corporation, the company has to also benefit a wider range of stakeholders, i.e. some part of society.

Structure of a benefit corporation

The structure of a benefit corporation is the same as that of a traditional corporation, with a few differences within the individual roles. Corporations have three main tiers of management: shareholders, directors, and officers.

Shareholders
The shareholders of a corporation are the owners. They’re the ones who “hold” shares of stock. Depending on how much stock they own, they have varying degrees of influence on the corporation — but they don’t make the decisions or run the day-to-day. Instead, they elect the company’s directors, who take care of all of that. They also vote to remove directors, when it seems like those directors aren’t working in the best interest of the corporation.

Benefit corporations are obligated to report to shareholders on how well they’re meeting that mission. If shareholders feel the company isn’t meeting the mission, they can bring lawsuits with the aim of getting the company back into compliance.

Directors
The Board of Directors is elected yearly by the shareholders and they have a more direct involvement with the running of the corporation. They’re obligated to have an annual meeting about the business, as well as elect the corporate officers, set operation policies, expand the business, and authorize financial decisions. If a director doesn’t act in the corporation’s best interests, they can be held personally liable.

In a benefit corporation, Directors have to consider the interests not only of the shareholders but also any non-shareholders that the company affects.

Officers
Officers are elected by the Board of Directors and they manage the day-to-day operation of the corporation. There are usually four officers: President, Vice President, Treasurer, and Secretary. They’re in charge of keeping things moving along, managing employees, and taking care of the nitty-gritty.

How to set up a B Corp

B Corporations — as opposed to benefit corporations — are companies that have been certified by the non profit B Lab. They use an online assessment called the B Impact Assessment that asks questions about the company related to Governance, Workers, Community, and Environment. If your company is going to qualify for that B Corp stamp of approval, you have score at least 80 out of 200 points on the Impact Assessment. All of this info is self-reported, but B Lab randomly picks 10 percent of all certified companies for an onsite review.

While any type of corporation can get B Corp certification, B Lab has state-by-state legal requirements for getting certified with them. Depending on the state in which you’re incorporated, you may have to change your corporate structure from an S corp or a C corp to a benefit corporation. And any LLCs that get B Corp certified have to change their operating agreement within 90 days of certification to include community interests.

Finally, B Lab is going to ask you for money to get that lovely B in a circle stamp. If your company makes $49,999 or less per year, the annual fee is $500. After that, the amount increases in tiers, going up to more than $50k a year if your company is pulling in over $1 billion in sales annually.

Advantages and disadvantages of benefit corporations and B Corp certification

Advantages of benefit corporations

1. More able to serve the public good
While traditional corporations may be limited in their good works by their obligations to their shareholders, benefit corporations are free — in fact, obligated to — also focus on the public good. If the goal of your startup includes a true societal impact, than becoming a benefit corporation makes sense.

2. Might make it easier to raise money
Because stockholders know that they can keep a benefit corporation accountable to its mission, some investors will be more likely to write that check. (What investor wouldn’t want increased legal protection, accountability, and transparency?) A benefit corporation has a greater likelihood of raising funds from an impact investment firm, for example, than other types of corporations do.

3. Attracts employees
Studies have shown that millennials in particular want to get meaning from their work and becoming a benefit corporation shows those valuable potential employees that your company stands for more than just making money.

4. Confers credibility
Benefit corporations get a boost of cred not only because they join a group of other well respected businesses, but also because being a benefit corporation signals to a certain type of consumer. The same people who care about buying organic and Fair Trade and eating locally will seek out and patronize benefit corporations.

Disadvantages of benefit corporations

1. Increased record keeping
Because benefit corporations have to serve the public good, there’s more record-keeping required than there is with other types of corporations. For instance, you’ll have to submit an annual report to both the shareholders and the public about how you’re doing, including whether or not you’re meeting the social good you’ve committed to.

2. It’s a relatively new type of corporation
While courts and tax people and investors are familiar with C corps and S corps and other types of business formation, benefit corporations are new — less than a decade old. As a result, you may run into issues that are due to that unfamiliarity, like courts not being totally sure how the mandate for public good should be interpreted.

3. Requirements differ from state to state
Requirements for benefit corporations differ from state to state, which can be a headache. Granted this isn’t a problem solely for benefit corporations — LLCs also have to deal with differences between states as well — but it’s one to note.

4. The mission might interfere with profit
Benefit corporations are required to have and commit to a mission — and sometimes that mission can interfere with maximizing profits for stockholders. That conflict can be a tricky one for benefit corporations to navigate.

Advantages of B Corp certification

1. Marketing
Having an official B Corp certification is great marketing. It clearly communicates to your customers that your company is among the best of the best when it come to ethical business and environmental practices.

2. High standards push you to be better
The B Corp certification is notoriously difficult — and that’s for a reason. They want to make sure that only the best get to show that B in a circle. Companies often find that the high standards get them to reassess how well they’re fulfilling their missions and even make changes.

3. Communicates credibility
Being a certified B Corp company lets everyone — from retail partners to consumers to investors — know exactly how well you’re living up to your own hype. In this age of green washing, that kind of credibility can be invaluable.

4. Cost effective way to evaluate your company
Measuring your environmental and social impact can be expensive and time consuming. But some certified B Corp companies find that B Corp certification is a clear, cost-effective way to objectively measure their impact.

Disadvantages of B Corp certification

1. It can be costly
The fees for B Corp certification range from $500 to over a million, depending on how much your company makes. So if your startup is still in the bootstrapping phase, it may not be worth it quite yet.

Examples of B Corps

Here are some examples of famous companies that are also certified B Corps.

• Patagonia
• Etsy
• Kickstarter
• King Arthur Flour
• Ben & Jerry’s
• Method
• Cabot
• HootSuite
• Klean Kanteen