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B Corp and a Benefit Corporation are Not Created Equal

| Thursday September 8th, 2011 | 10 Comments

B Corporation is a non-profit certification from B-Lab, a company that supports the legal structure Benefit Corporation

B Corp is just short hand for a Benefit Corporation, right? Not quite. Although there are similarities between the two in name, and in spirit, there is a crucial difference. B Corp is a certification and a Benefit Corp is a legal entity. Let me explain.

The Confusion Between B Corp and Benefit Corporations
First off, let’s talk about the confusion. If we look at the description of a B Corp and a Benefit Corporation, both are extremely similar.

“Certified B Corporations are a new type of corporation which uses the power of business to solve social and environmental problems.” – B Corp

“Benefit Corporations are a new class of corporation that are required to create a material positive impact on society and the environment and to meet higher standards of accountability and transparency.” – Benefit Corporation.

Confusing? Yes. Both seek to benefit society and the environment. So then what is the difference?

B Corp – The Certification
B Corp is a certification offered by a non-governmental organization named B Lab. (I know, alphabet soup confusion!) There is no state legislative mandate or structure, per se.

Rather, companies wishing to become a Certified B Corp fill out an Impact Assessment. A company not only has to meet certain social and environmental criteria, but provide support documents to become fully certified. Furthermore, company bylaws must eventually be amended to include stakeholder interests. The change in bylaws will make the company strikingly similar to a Benefit Corporation in corporate structure.

Benefit Corporation – A State Legal Entity
A Benefit Corp is a state government legal corporate structure. It is a way to legally structure a company like an LLC, S-Corp, or C-Corp. Benefit Corporation status will allow companies to embed their sustainable principals into their DNA. In some ways, this is just a more straighfortward version of what B Lab is trying to do with the B Corp certification.

The California Legislature recently passed legislation to allow companies incorporated in the state to be Benefit Corporations. The nuances of the bill may differ from state to state in order to accommodate each states unique legal structure.

Yet, the heart of the the Benefit Corporation is the same across the board. Rather than a corporation focusing on just profit for the shareholders, a Benefit Corporation is required to focus on the public benefit (hence the name Benefit Corporation.)

Only five states have the Benefit Corporation as an option when incorporation in that state: Hawaii, VIrginia, Maryland, Vermont, New Jersey. Six more states are in the process of making it part of their states corporate legal system: Colorado, New York, North Carolina, Pennsylvania, California, and Michigan.

On a side note, just to clear up even more confusion, B Lab, creator of the B Corp certification also advocates for such legislation.

B Corp or Benefit Corporation?
Now that we have cleared up the difference between B Corp and Benefit Corporations, can a company be both a B Corp and a Benefit Corp? The answer is yes, granted you meet the requirements of certification and incorporate in a state that has a Benefit Corp entity.

What do you think? Are B Corp and Benefit Corp complementary? Or does it just confuse folks? Should more and more companies seek to adopt one or the other?


▼▼▼      10 Comments     ▼▼▼

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  • http://www.facebook.com/people/Matthew-VanSweden/535105515 Matthew VanSweden

    It seems they are complementary. I would assume if you are in a state that has no Benefit Corporation legal structure you’d work to become B Corp certified. If your state has said Benefit Corporation legal structure, you’d be both.

  • R. Carter McRee, PhD

    While they may be complimentary are they congruent? That is, if I set up my benefit corporation in Virginia or Hawaii will it automatically qualify as a B corporation? I understand that there are fees ($500-$25,000)involved when getting certified as a B corporation. Is there any reason I need to pay that fee? Will I receive conjoint benefits?

    • Jen Boynton

      My guess is that B Labs would still want you to pay for the certification, but we’d have to get someone from the NGO over here to comment for sure.

      The only “benefit” to being a Benefit Corporation is that the company cannot be sold out from under you by unscrupulous board members who value the financial bottom line over the environmental/social mission of your company (see Ben and Jerry’s, Seventh Generation). You’d have that protection as a Benefit Corporation or if you adjust your company’s bylaws vis-a-vis the B-Labs recommendations. I don’t think the certification provides that protection, but there may be other benefits associated with it.

    • http://www.perlmanandperlman.com Allen R. Bromberger, esq.

      B Corps and benefit corps are completely distinct. A B corp can become a benefit corp, and a benefit corp can become a B corp, but there is a separate process and standards for each. Jay Cohen, one of the founders of B Lab, which created both the B corp and the benefit corp, provides some further explanation in a later comment that appears below.

  • rcabinte

    Nice work, Jonathan.

    I think a lot of the confusion can be laid at the feet of B Corp themselves. They market B Corp as “a new type of corporation” when for clarity’s sake, it would make much more sense for them to call themselves a certification. In the past, the phrase they used was even more misleading: “new type of legal corporation,” or some such, where “legal” technically meant the change in by-laws Jen is talking about, as opposed to the more straightforward interpretation of a new corporate form.

    The fact the B Corp still uses the “new type of corporation” phrasing leads me to believe the confusion is deliberate or tactical. Not malicious, mind you, but certainly well understood by B Corp. It’s easy to read “type” and think corporate form, not corporate operation policy. It’s good for B Corp that there is a casual conflation of B Corp and Benefit Corporation–B Corp’s vision is probably an eventual, actual corporate legal form operated for stakeholders funded by equity investment.

    • Jen Boynton

      “B Corp’s vision is probably an eventual, actual corporate legal form operated for stakeholders funded by equity investment”

      Does that mean you think they’re aiming to compete with the Benefit Corporation model? It’s odd because if it becomes truly widespread and available in every state it kind of makes the B Corp certification obsolete.

      • rcabinte

        No, I think the way Benefit Corp laws are being written, they’re good for, rather than competitive with, B Corp. The Benefit Corp laws decline to define “public benefit” or “stakeholder interests.” Instead, they generally require third party assessment of public benefit or leave it entirely up to the corporation to name their criteria. I suspect (but do not know) that B Corp is positioning its brand to be the go-to third party standard/certifier/auditor for non-shareholder interests in Benefit Corporations. This is why I think B Corp is not in a hurry to correct the confusion Jonathan highlights.

        But I see what you’re saying. It’s the by-law modification aspect of B Corp that makes it different. Benefit Corp statutes could make that differentiator obsolete, since you endorse stakeholder interests by choosing corporate form, not modifying your bylaws. In that case, the battle will be over quality and relevance of the stakeholder selection and metrics. B Corp may have more competition on that score, but I think they’ll still have a place.

        This is all just observing from a far, though.

  • http://www.bcorporation.net Jay Coen Gilbert

    Hi, I’m one of the co-founders of B Lab, the non-profit that certifies B Corporations and supports the efforts to pass benefit corporation legislation.

    Jonathan has written an excellent summary of the distinction between the two and each of the above comments are equally insightful. I thought it might be helpful if I tried to add a little color on a few of the issues raised so far. No doubt all the B-stuff is a bit confusing, but we agree that these efforts are intended to be complimentary. Please keep the conversation going if I make things more confusing or leave something important out.

    - B Lab recognizes that not all benefit corporations will become Certified B Corps. No worries.

    - The legal protection for directors of benefit corporations will be a little stronger because its embedded in statute.

    - Current corporate law in 20 states, importantly including CA and DE, makes it impossible without benefit corporation legislation for directors to enjoy this legal protection.

    - Passing legislation not only provides incremental legal protection, but also gives this movement more legitimacy by institutionalizing the legal innovations of Certified B Corporations into corporate law. This makes it easier for the next generation of entrepreneurs to build companies that are both permitted and protected to create value for both shareholders and society.

    - The last comment is spot on that since a benefit corporation and a Certified B Corp both expand the fiduciary duties of directors to consider the impact of their decisions on all stakeholders, the key difference becomes their performance.

    - Benefit corporations are required to create a ‘material positive impact on society and the environment, taken a a whole, as assessed against a third party standard’. B Lab offers one such third party standard (the B Impact Assessment) that can be used for free by benefit corporations to meet this reporting requirement(or anyone else for that matter as a free management tool, as more than 1,500 organizations already do).

    - While benefit corporations, their shareholders, and ultimately a judge would determine what they deem to be ‘a material positive impact’, every Certified B Corporation has achieved a minimum score (80 out of 200) on the B Impact Assessment, has had their score verified, and is subject to random on-site audit by B Lab.

    - Benefit corporations can choose among many available third party standards as long as they meet the statutory requirements of being ‘comprehensive, credible, independent, and transparent’ (to avoid being overly prescriptive) and are not required to have their annual benefit report verified by a third party (to avoid adding costs that might limit adoption). In a free market, some will choose more or less rigorous third party standards, but since benefit corporations are required to publish their annual benefit report publicly, the public will have the tools to hold them accountable if they feel the standard is weak.

    - 450 leading sustainable businesses and social entrepreneurs have chosen to become Certified B Corporations, not only because of the legal protection, but also because there’s a business case. Because they’ve met rigorous, verified social and environmental standards, Certified B Corps are eligible for a bunch of cool things, including: qualifying for the non-profit discount on Salesforce’s CRM platform, pro bono legal services, free Intuit accounting software, help recruiting talent since Yale School of Management forgives the loans of alumni who work for Certified B Corps, participation in the B Corp ad campaign thanks to generous donations of ad space by Ogden Publications (Mother Earth News, Natural Home, Utne Reader, etc), Sustainable Industries, and Care2.com. There’s a bunch more, but that’s a start.

    - Beyond the business case, most become certified also as an act of leadership to effect change together greater than that they could individually. Without the advocacy of these 450 businesses, benefit corporation legislation would not get passed. Without their leadership, the GIIRS Ratings and Analytics platform for impact investing would not be launching at CGI next week with 15 pioneer investors announcing an investment preference for funds and companies GIIRS-rated for their impact. Without their leadership, 1,500 sustainable businesses, large corporations, sustainable business associations, incubators, etc wouldn’t have a free and pretty useful management tool in the B Impact Assessment to help them assess, manage, and communicate the impact of their company or community.

    Sorry for being so long-winded. Thanks for your thoughtful interest and no doubt if you’re reading this on 3P for your leadership in advancing the sustainable business movement. l

    • Margaret Wohler

      Thank you so much Jay, and everyone for your comments,

      I’m replying as a concerned member of the CouchSurfing International organization which recently switched, from non-profit status, to B-corps certified C-corporation. They needed to make this re-org due to money issues: they required venture capital to remain solvent because they had mismanaged their donation income as a non-profit and were denied the 501(c)(3).

      Many CouchsSurfing members are very angry at this change, despite the b-corps status, because they’d volunteered time, donated money, and uploaded data to the CS servers thinking that it would never be sold to investors. They feel betrayed. You can see more about an open revolt, of more than 2,000 CS members, on this issue here: http://www.couchsurfing.org/group.html?gid=45507

      I honestly do not think that CouchSurfing managers were deliberately malicious in their poor financial decision making, nor their shoddy governance, when registered as a non-profit, but I’m assuming that b-corps doesn’t want to be a fig leaf for orgs that would be more properly run as well-orchestrated non-profits.

      I also understand that the B-Lab survey only requires 20% of its survey replies to be backed by documentation. CS did receive a score of 106.8 on the initial survey, and therefore did earn certification, but how rigorous are the fact-checks on this survey. I honestly cannot imagine how CS got a 83% accountability score because they are the least accountable organization I have ever encountered. The IRS 501(c)(3) rejection letter was basically a fiscal spanking, in legalese.

      http://www.bcorporation.net/couchsurfing

      http://www.irs.gov/pub/irs-wd/1125045.pdf

      thank you for your replies!

  • Jen Boynton

    Thanks for providing all this great clarification, Jay.