What is a B Corporation?
A B corp is a type of for-profit corporation that also has a goal to benefit the community and/or the environment. Importantly, this goal isn’t just something the company says in order to look good. B corps must have a plan and actually make an honest effort to reach that goal.
Standard corporations legally only have a fiduciary duty to their stockholders, which means they’re only required to increase the financial value of the company and its shares of stock.
This differs from benefit corporations. B corps still have a fiduciary duty, but they also are legally required to make business decisions with their social benefit goal in mind. They must balance trying to make a profit with trying to benefit the community or the environment.
A benefit corporation is more than just a name. As of April 2020, 35 states and Washington D.C. had passed legislation to designate B corps as legal business entities.
Why Start a B Corp?
There are many good reasons to start a B corp if you’re interested in having a business that also benefits the community or the environment. Here are five of the best:
Reduced Liability: With a standard corporation, officers and directors are legally obligated to try to maximize shareholder value. If a company’s management makes business decisions based on social or environmental concerns, its shareholders could sue if those decisions reduce the company’s profits.
While B corps still must try to make a profit, they also must pursue a goal of providing a public benefit. This allows a company’s management and board of directors to balance social and/or environmental considerations with financial ones — without risking a shareholder lawsuit.
- More Attractive to Top Talent: These days, more people seem to want to pursue work for which they have a real passion. That can make working for a socially conscious company an appealing option. While younger workers are often especially interested in working for a B corp, this type of company can attract people of all ages.
- Increased Investment Potential: Many investors prefer to invest in companies with a social mission. This can open up opportunities down the road if you’re looking to raise capital.
- Greater Recognition and an Improved Reputation: Becoming a B corp can earn your company greater recognition and improve its reputation among customers, investors, and potential employees. Many people seek out socially conscious products and services. By forming a B corp, you show the world that your company wants to make a positive impact — and that can lead to positive feelings about your company and increased business.
- Personal Satisfaction: Owning and operating a B corp also just feels good. Knowing that your business benefits society can make your time spent at work (and even at home) more enjoyable. Being happy with your job is priceless.
What Are the Requirements for a B Corp?
The rules for B corps can vary from state to state. However, B corps must meet two general requirements regardless of their location. Specifically, they must:
- Have a Public Benefit Goal: The main requirement for B corps is that they must have a goal of producing a public benefit — either social or environmental — and then make an honest effort to accomplish that goal.
- Create and Publish a Benefit Report: To prove they’re actually taking action to accomplish their public benefit goal, benefit corporations must publish an annual benefit report that describes their operations and efforts.
Some states also require B corps to become a Certified B Corp. A Certified B Corp is a company with a private, third-party certification issued by the nonprofit B Lab rather than a legal corporate structure. B Lab has several additional requirements of its own.
What Are the Disadvantages of a B Corp?
Despite the many great reasons to start a B corp, they also pose some potential disadvantages. These include:
More Work (and Potentially More Liability): Yes, “reduced liability” is one of the five key reasons to start a B corp noted above. However, while the B corp structure protects owners and management from potential shareholder lawsuits for taking public benefit goals into consideration instead of strictly trying to maximize profits, that also means the company is now required to pursue its social and/or environmental goals.
Along with the additional paperwork that comes with running a B corp, the owners and management can face increased liability if the company fails to pursue those goals.
- Limited Availability: This isn’t exactly a disadvantage of the business structure, but B corps aren’t an option in all states. As of April 2020, only 35 states and Washington D.C. recognize them as a legal entity. If your business is in one of the other states, you’ll have to form a different type of company.
- Evolving Rules and Regulations: As a relatively new type of business structure, B corps face an evolving set of rules and regulations. This can sometimes cause uncertainty, which some business owners and investors try to avoid.