Docstoc

What Is a B Corporation and How Do You Form One?

With more entrepreneurs, investors and workers interested in being part of a company with a larger purpose, benefit corporations can help your company stay focused on its social or environmental mission by providing legal protection to pursue both purpose and profit while offering greater transparency.

Explaining Benefit Corporations

Benefit corporations (not to be confused with mutual-benefit non-profit organizations) are for-profit entities that voluntarily pursue a social or environmental mission. Some benefit corporations operate more like traditional corporations and simply want to protect their company brand and, in doing so, the long-term interests of their company (i.e. Ben and Jerry’s).

Other benefit corporations may act more like non-profits. A company that would otherwise be a non-profit may opt to become a benefit corporation in order to raise capital like a traditional corporation while keeping their environmental or social mission intact.

Shareholders of benefit corporations are asked to judge the company based on societal and environmental impact, not just profit, which is the sole focus of a traditional corporation. Whereas a traditional corporation runs the risk of being taken hostage by shareholders or investors that seek to eschew the company’s mission by pursuing short-term profitability, benefit corporations protect a company’s image and brand.

Benefit corporations are responsible for publishing independent reports that meet the requirements of their state’s legislation and that outline their social and environmental impact in addition to financial results.

Benefit corporations can institutionalize stakeholder interest into their governing documents (e.g. Articles of Organization or Articles of Incorporation), whether the business is a C Corporation, S Corporation or LLC.

Maryland became the first state to allow benefit corporations in April 2010. As of December 2013, 19 states, plus DC, have passed laws allowing benefit corporations.

A benefit corporation should not be confused with a “B Corp.” To become a B Corp, you must be certified by the non-profit organization “B Lab.” Any company in the world can register to become a B Corp if it can adhere to the requirements of B Lab, which include actively pursuing an environmental or social mission.

These independent certification companies are especially important to benefit corporations, as they can provide evidence that a company has been acting under the legal requirements of a benefit corporation. The independent reports provided by these organizations also help shareholders make better-informed decisions about their company’s progress

The Advantages of a Benefit Corporation

There are a number of advantages to becoming a benefit corporation:

  1. Your social mission will be protected. This means that shareholders can be confident that if they invest in your company, it will be serving the same purpose in the future. It also gives additional rights to shareholders to make sure these social interests are considered.
  2. Benefit incorporation will help you attract new talent because, more than ever, people entering the workforce would prefer to work at companies with a larger purpose.
  3. Benefit corporations can seek mainstream capital without the restrictions of a non-profit. Benefit corporations may consider a buyer’s ability to pursue the company’s environmental and social mission when selling shares in their company instead of solely focusing on maximizing returns to their shareholders.
  4. The benefit corporation legal framework attempts to create legal protections and reduce liability for the Board of Directors.

Not all companies will flourish as benefit corporations. Companies that do not have a specific mission, or young companies that may not be able to meet quarterly or annual benchmarks may not qualify as benefit corporations through independent reporting. In these cases, attempting to become recognized as a benefit corporation would be a waste of time and money.

Becoming a Benefit Corporation

A benefit corporation must meet third-party standards that assess the company in a number of areas, such as the effect of the business on its employers, workforce, subsidiaries, customers, the local community, society, and local and global governments.

These standards must be developed by an independent entity. This can be done by a third-party organization or by your company if you follow certain criteria. To view these criteria, visit the Benefit Corp Information Center.

Certifying Your Benefit Corporation

Once you have decided to make your company a benefit corporation, you will need to gain verification of performance measures for your business that will protect you by law. By certifying your company with a third-party organization, you may be eligible for a number of perks from your certifier of choice, such as:

  • Help with generating press by nominating and advocating for honors among leading business magazines and reviews.
  • Assistance with setting goals and standards for employee improvement.
  • Investors and financial services firms will be able to use the ratings system as part of due diligence or portfolio management.

Becoming a Certified B Corp

B Corp certification is one way to verify your company as a benefit corporation. Following the steps of certification can provide a good example of steps your company may need to take in order to be considered a benefit corporation.

Amend Your Governing Documents

Your governing documents must meet the legal requirements for certification in your state. The language to amend the articles will differ from state to state. These amendments ensure the consideration of long-term prospects, social, economic, legal or other effects of any action on current and retired employees; they also apply to suppliers and customers, the community and society in which the company operates, in addition to the short-term and long-term interests of its members and its effects on the environment and economy.

Meet the Performance Requirements for Becoming a Benefit Corporation

Take the B Impact Assessment Test, which will validate your company’s social and environmental performance. This includes completing an assessment review with a B Lab staff member and in some cases submitting supporting documents and completing the disclosure questionnaire.

Pay the Certification Fee

Once you have met the performance requirements for B Corp certification, met the legal requirements of your state for your corporate structure, participated in the on-site review in which companies are randomly selected and paid the annual certification fees, you will be certified as a B Corp for two years.

Continuing the Process

Once you are certified as a B Corp, there are still some steps you will need to take to cement your status. You will want to obtain board approval of the amendments to your governing documents, shareholder approval of the approved amendments, and file your amended articles of incorporation with your state within one year.

Becoming a benefit corporation allows you to run your business in a way that helps attract customers while ensuring that you pursue and protect your company’s mission. If you wish to hold your company to independently verified standards that can help you gauge your business’ impact on society and the environment, you may want to consider benefit incorporation.