Benefit and Certified Benefit Corporations: Are They Right for Your California Small Business?
Read this page to learn:
- What a Benefit Corporation (B Corp) is
- How a B Corp differs from a traditional C or S corporation
- Where B Corporations originated
- How to form your own B Corp or Certified Benefit Corporation
- The advantages and disadvantages of having B Corp status
- Whether a B Corp is right for your business
- How a Small Business Lawyer in Orange County CA can Help You Decide if a B Corp is Right for You
You probably already know about traditional C corporations or S corporations. But now there’s another possibility for companies looking to do more than just earn profits. And it’s creating quite a buzz. It’s the B Corp, or Benefit Corporation.
Like other corporations, a B Corp is taxed either as an S corporation or a C corporation. So what distinguishes a B Corporation? B Corporations must serve a public benefit, adding the heart of a non-profit organization to a for-profit company.
B Corps are trending with businesses seeking to make a positive impact on society and the environment. Although these entities have only come into existence over the past four years, B Corps are gaining momentum and credibility with the public. Today, 19 states and the District of Columbia have passed legislation recognizing B Corps. Companies in states that have yet to do so still have the option of becoming Certified B Corps.
The driving force behind this movement is an organization called B Lab, a non-profit company in Wayne, Pennsylvania. As B Corps continue to gain notoriety, it’s important to consider some of the benefits and differences between B Corps and regular C corporations when setting up your own business entity.
What is the difference between a B Corp and a C corporation?
First, it’s essential to differentiate between B Corps and Certified B Corps. To become a Benefit Corporation, or a B Corp, you must register as such with the Secretary of State. Since not every state has passed laws recognizing B Corps, companies wishing to carry on business for a public benefit in those states have the option of becoming Beneficial Corporations, or Certified B Corps. This certification has similar credibility within various industries as LEED does with green buildings. Notable corporations like Ben & Jerry’s are now Certified B Corps as B Lab becomes more widely recognized and appreciated.
The most notable difference between a B Corp and a C corporation is in a company’s purpose. C corporations conduct lawful business for profit, just as a B Corp would. However, B Corps have the added purpose of creating a general public benefit.
This means that where a C corporation’s board of directors and officers owe a fiduciary duty to the shareholder, a B Corp owes a duty to the shareholders and the public alike. It follows that B Corps are more accessible and transparent to the public.
To maintain B Corp (or even Certified B Corp) status, a company must publish an annual report facilitated by B Lab and assessed against a third-party standard. This gives the public a chance to evaluate whether the company has met its socio-environmental objectives. If not, the shareholders of a B Corp may regulate the company’s operations through Private Right of Action proceedings. However, becoming a B Corp does not affect whether a corporation elects to file taxes as a C or S corporation.
How do I become a B Corp?
To be incorporated as a B Corp, a company’s Articles of Incorporation must reflect that the entity is a Benefit Corporation and maintains the purpose of carrying on a lawful business for public benefit. Some states require that a company’s Articles of Incorporation account for a Benefit Director.
Although most B Corps are for-profit companies, non-profits also have the option of becoming B Corps. However, given the company’s unique concern for creating a social benefit, B Corps require highly specialized leadership, the cost of which often times outweighs the benefits for non-profit organizations.
To become a Certified B Corp, a business must submit an application to B Lab and take a preliminary assessment test, which considers its structure and objectives, then scores it accordingly. If a company passes the assessment with an adequate score, it progresses to the next stage of evaluation in which B Lab verifies the information provided by the company in the assessment. Once a business has gone through the various stages of appraisal, it receives its certification and becomes a member of the B Lab network of companies.
A Benefit Corporation may not be right for you.
For a small or medium-sized company, a B Corp might not be the best business structure. Businesses that are simply trying to remain afloat or that would rather avoid burdensome paperwork might not have the time or resources for the luxuries of a B Corp. For many business owners, however, a B Corp may be the perfect option, given their particular trade or industry. In a growingly “green” society, some big name clients will seek out companies that are socially aware to form business relationships. For those entities, becoming a B Corp or a Certified B Corp fulfills both their company’s philosophy and its profit-making goals.
Get help incorporating your company from a small business attorney in Orange County CA
Contact corporate lawyer Andrew Gale to learn whether a B Corp, or another business entity, is right for your business. Call Andy today at +1 (714) 634-4838.