I recently co-taught a workshop with Derek Hydon and Andrea Chase for entrepreneurs exploring the "Certified B Corporation" route. Early in the program, it became clear that there is a lot of confusion out there about B Corps, Certified B Corporations and Benefit Corporations and how these concepts fit together.
I get it - the terminology is ridiculously confusing. So I thought I'd do my best here to provide as concise a summary as possible.
- “Certified B Corporations” are for-profit businesses that have met stringent sustainability, transparency and governance standards established by a non-profit organization, B Lab. Companies that achieve a certain score on B Lab's assessment tool - the "B Impact Assessment" - and satisfy B Lab's audit requirements are eligible to become Certified B Corporations. Confusingly, a business does not have to be legally structured as a corporation to a be a Certified B Corporation. LLCs, partnerships, corporations and even sole proprietorships are all eligible, but to remain certified, B Lab imposes specific requirements depending on your structure (more on that below).
- A “Benefit Corporation” is a type of legal structure in the same way an LLC is a type of legal structure. A benefit corporation is like a traditional corporation in virtually all respects (including with respect to federal and state taxation) but it has three defining legal features that codify the corporation's commitment to positive impact and enhanced governance standards:
- Benefit Corporations Are Required To Pursue Public Benefit. Unlike traditional corporations (which can be operated for virtually any lawful purpose), benefit corporations are required pursue a positive public benefit through their business operations. This feature integrates the corporation's higher purpose or social impact commitments into its legal charter.
- Directors and Officers of Benefit Corporations Are Required To Balance Financial Interests With the Company’s Mission and Impact. Unlike traditional corporations (in which directors and officers are viewed as having an overarching duty to maximize value for shareholders), directors and officers of benefit corporations are required to balance the pecuniary interests of shareholders with the Company’s pursuit of public benefit and its impact on stakeholders like employees, suppliers, customers, the environment, and the local community.
- Benefit Corporations Must Satisfy Expanded Transparency and Disclosure Requirements. Unlike traditional corporations (which generally have no legal obligation to report on impact or sustainability metrics), benefit corporations are required to evaluate their impact performance against a comprehensive and independent third-party standard (such as the B Impact Assessment) and publicly report the results of their assessment.
3. Currently, 33 U.S. states (including California and Delaware) and Italy have enacted benefit corporation legislation. The specific legal features of Benefit Corporations vary somewhat from state to state but most are based on model legislation spearheaded by B Lab, including California, but with the notable exception of Delaware, which I will discuss in a separate post. Adding to the terminology confusion: In Delaware, benefit corporations are referred to as “Public Benefit Corporations” or PBCs.
4. As mentioned, any for-profit business is eligible to become a Certified B Corporation regardless of legal structure, but B Lab imposes certain legal requirements once you become a Certified B Corporation. Specifically:
- If you are operating as a traditional California or Delaware corporation (or in another state that has enacted benefit corporation legislation), you must convert your corporation into a benefit corporation within 2 years of initial B Certification. This generally will require the approval of your Board and 2/3 of your shareholders.
- If you are operating as an LLC or Partnership, you must amend your operating or partnership agreement to mirror certain B Corp governance principles within 90 days of initial B Certification. This will require whatever approvals are specified in your LLC or partnership documents.
All the B Corps I work with are organized are California and Delaware but if you are organized in another state, B Lab has published a “Legal Roadmap” to help you navigate the legal requirements. You can find it here.
People commonly use the term "B Corp" to refer interchangeably to Certified B Corporations and/or Benefit Corporations. It's also frequently used to refer more generally to businesses that are operated sustainably or with a triple-bottom-line orientation. All of this is understandable but naturally adds to the confusion, which I think we'll be living with for a while.
Hope this is helpful. If you have questions, don't hesitate to reach out.