What is a B Corporation?

A benefit corporation (B corp) is a for-profit corporation that must have a goal to benefit the community or the environment.

In this guide, we will explain what a B corporation is, its pros and cons, and the requirements for forming a B corp.

A B corp — also known as a public benefit corporation — is a type of for-profit corporation that also must have a goal to benefit the community and/or the environment.

For comparison, standard corporations legally only have a fiduciary duty to their stockholders (meaning they’re only required to increase the financial value of the company and its shares of stock). B corporations balance the two goals.

As of April 2020, 35 states, as well as Washington D.C., have passed legislation to designate B corps as legal business entities.

The rules for qualifying as a B corp can vary from state to state, but, in general, include two main requirements:

• A Goal to Produce a Public Benefit: The main requirement for B corps is that they must have a goal of producing a public benefit — either social or environmental — and take action to accomplish that goal.

• Creation and Publication of a Benefit Report: Benefit corporations also must publish an annual benefit report to provide transparency into the business and its efforts to meet its public benefit goal(s).

Additionally, some states require B corps to obtain certification from a third-party certification organization. These organizations generally have their own requirements. See our section on certified B corps below for more details on third-party certification.

The B corp structure can provide companies with several benefits, including:

• Reduced Liability: With a standard corporation, officers and directors have a fiduciary duty to increase shareholder value. This means decision-making based on social or environmental impact that might not maximize the monetary value of the company could leave the company and management vulnerable to shareholder lawsuits.
  
  While B corps still aim to make a profit, they also must have — and pursue — a goal of providing a public benefit. This allows the company to balance these considerations with financial ones without the worry of a shareholder lawsuit.

• More Attractive to Top Talent: Working for a socially conscious company appeals to many people. Younger workers, in particular, seem especially interested in working for a B corp.

• Increased Investment Opportunities: Many investors, including impact investment capital firms, look to invest in companies with a social mission.

• Greater Recognition and an Improved Reputation: Becoming part of the B corp community can earn greater recognition for your company and appeal to a new potential group of customers.

• Personal Satisfaction: Owning and operating a B corp also can provide personal satisfaction. Knowing that your business benefits society can make you feel good and make work more enjoyable. While this isn’t a tangible financial benefit, it can still prove very valuable.

Benefit corporations also can come with some disadvantages, as outlined below. It’s important to weigh these against the advantages when deciding if the B corp structure is right for your business.

• Increased Obligations: While having the freedom to focus on both social and financial goals can provide B corp owners and directors with liability protection in some cases, it also obligates them to pursue those goals. That can not only add extra work, but also liability in the event those goals are not pursued or other requirements of qualifying as a B corp aren’t met.

• Limited Availability: While not exactly a disadvantage, the B corp structure is only recognized as a legal entity in 35 states and Washington D.C. (as of April 2020). That means businesses in the remaining states don’t have the option of becoming a B corp.

• Evolving Rules and Regulations: As a relatively new type of business structure, B corps face an evolving set of rules and regulations as states write and develop their requirements. This can add a level of uncertainty that may make some people uncomfortable.

B corps and Certified B Corps are often mistaken for the same thing. A Certified B Corp is actually a company with a private, third-party certification issued by the nonprofit B Lab rather than a legal corporate structure.

However, the two often are closely connected with some states requiring B corps to obtain third-party certification. These certifications often have stricter requirements than those written in state law. Corporations in states without laws about forming a B corp also can apply to become a Certified B Corp.

To become a Certified B Corp and maintain that certification, a B corp must:

• Complete the B Impact Assessment: Companies applying to become a Certified B Corp must first complete a free assessment. This involves answering questions about the company and its operations, including how it impacts its workers, its customers, the environment, and society.

  Because the assessment asks questions about past operations, companies must have been in business for at least a year to qualify for Certified B Corp status. Companies in business for less than a year are eligible for Pending B Corp status.

• Schedule and Complete an Assessment Review: After a company completes the impact assessment, a B Lab representative typically will review it with the company via phone. This gives the company a chance to clarify anything and potentially provide more information.

• Pass a Background Check: B Lab will perform a background check of the company’s operations as well as its executives and founders.

• Sign a B Corp Agreement: The company must sign a B Corp Agreement to add legal accountability. The requirements of this agreement will depend on the company’s location and local laws.

  In a state that legally recognizes B corps as a business structure, for example, the company may be required to convert to that structure while a company in a state or country that doesn’t recognize B corps might just have to add certain language to its governing documents.

• Update Their Impact Assessment Regularly: Certified B Corps are required to update and pass their impact assessment every three years.

• Share a B Impact Report: Certified B Corps must publicly share their annual B Impact Reports on B Lab's website.

• Pay an Annual Fee: Certified B Corps also must pay an annual fee to maintain their certification. The amount — based on a company’s annual sales — starts at $1,000 for companies with less than $150,000 in sales. The annual fee for B corps with more than $1 billion in sales can exceed $50,000.