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What’s the Difference Between Certified B Corps and Benefit Corps?

Ryan Honeyman | Tuesday August 26th, 2014 | 13 Comments

This is the third in a weekly series of excerpts from the upcoming book “The B Corp Handbook: How to Use Business as a Force for Good.” (Click here to read the rest of the series.)

B Corp Logo - Next 20 YearsBy Ryan Honeyman

It took me 12 months of research, over 100 interviews and writing a 240-page book, but I finally figured out the difference between Certified B Corps and benefit corps.

If you are confused about the difference between the two — or didn’t even know there was a difference — don’t worry. This is one of the most commonly confused aspects of the B Corp movement.

Certified B Corporations and benefit corporations share much in common but have a few important differences. For a direct comparison, see the chart at the bottom of this article.

Q: What are Certified B Corporations?

Certified B Corporations (also referred to as ‘B Corps’ or ‘B Corporations’) are companies that have been certified by the nonprofit B Lab to have met rigorous standards of social and environmental performance, accountability, and transparency. B Corp certification is similar to LEED certification for green buildings, Fair Trade certification for coffee or USDA Organic certification for milk.

A key difference, however, is that B Corp certification evaluates an entire company (e.g., worker engagement, community involvement, environmental footprint and governance structure) rather than looking at just one aspect of a company (e.g., a building or product).

This big-picture evaluation is important because it helps distinguish between good companies and just good marketing.

Today, there is a growing, global community of more than 1,000 Certified B Corporations across 80 industries and 35 countries working together toward one unifying goal: to redefine success in business so that one day all companies will compete not just to be the best in the world but to be the best for the world.

“A good certification may help set us apart from our competitors, but the most powerful and transformative certifications focus on bringing us all together.” – Rebecca Hamilton, director of product development, W.S. Badger Company

Q: What types of companies can become Certified B Corporations?

B Corp certification is available to any private business in the world. For example, any of the following companies can become Certified B Corps:

  • Benefit corporation
  • C corporation
  • Cooperative
  • Employee stock ownership plan (ESOP)
  • For-profit company outside the United States
  • Limited liability company (LLC)
  • Low-profit limited liability company (L3C) Partnership
  • S corporation
  • Sole proprietorship
  • Wholly-owned subsidiary

Nonprofits, such as 501c(3)s in the United States, and government agencies are not eligible to become B Corps.

Q: What is a benefit corporation?

A benefit corporation (also referred to as a ‘benefit corp’)  is a new type of corporation that voluntarily meets higher standards of corporate purpose, accountability and transparency. In particular, benefit corporations:

  1. have a corporate purpose to create a material positive impact on society and the environment;
  2. are required to consider the impact of their decisions not only on shareholders but also on workers, community, and the environment; and
  3. are required to make available to the public an annual benefit report that assesses their overall social and environmental performance against a third party standard.

“Patagonia is trying to build a company that could last one hundred years. Benefit corporation legislation creates the legal framework to enable mission-driven companies like Patagonia to stay mission driven through succession, capital raises, and even changes in ownership, by institutionalizing the values, culture, processes, and high standards put in place by founding entrepreneurs.” – Yvon Chouinard, founder, Patagonia

Q: Why was the benefit corporation legal structure created?

One of the primary challenges that the B Corp movement was created to address is the difficulty that many entrepreneurs have in raising capital, growing or selling their business without diluting the company’s original social and environmental values.

Through the leadership of B Lab and the community of Certified B Corps, laws have been passed in many states (and are moving forward in many more) to create a new type of corporation — the benefit corporation — that best meets the needs of entrepreneurs and investors seeking to use business to solve social and environmental problems while supporting sound financial performance.

Q: Aren’t companies such as Whole Foods, Aveda and Eileen Fisher already socially and environmentally responsible without a benefit corporation legal structure?

Companies such as Aveda, Ben & Jerry’s, Burt’s Bees and Tom’s of Maine prove that one can run a profitable business and have a social mission. However, in times of crisis, such as the recent financial collapse, or under a leadership change, social and environmental values can get pushed aside if they are not embedded in the company’s foundational documents. The benefit corporation legal structure provides entrepreneurs, owners and investors with the assurance that the company’s social and environmental values will remain equally important to making a profit — no matter what.

“The benefit corporation has allowed us to preserve our mission and culture against unsolicited tender offers. We don’t have to worry that our board of directors might feel compelled to accept an offer that isn’t in our overall best interests.” – Jenn Vervier, director of strategy and sustainability, New Belgium Brewing Company

A more thorough discussion of the need for and rationale behind the benefit corporation, state-by-state instructions and detailed technical information about benefit corporations is available through the Benefit Corp Information Center website, benefitcorp.net.

Screen Shot 2014-08-25 at 5.02.22 PM

Image credit: B Lab

Ryan Honeyman is a sustainability consultant, executive coach, keynote speaker, and author of The B Corp Handbook: How to Use Business as a Force for Good. Ryan helps businesses save money, improve employee satisfaction, and increase brand value by helping them maximize the value of their sustainability efforts, including helping companies certify and thrive as B Corps. His clients include Ben & Jerry’s, Klean Kanteen, Nutiva, McEvoy Ranch, Opticos Design, CleanWell, Exygy, and the Filene Research Institute.

To learn more, visit honeymanconsulting.com. You can also follow Ryan on Twitter: @honeymanconsult


▼▼▼      13 Comments     ▼▼▼

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  • fsinsd

    Excellent job, Ryan!

    • http://www.honeymanconsulting.com Ryan Honeyman

      Thanks! This is one of the most confusing aspects of the B Corp movement, so I figured I should clarify.

  • Mark Phillips

    This is great! You’re right–the nuanced distinction between B Corps and Benefit Corporations is mixed up quite often. Good to see a simple explanation put out there.

    • http://www.honeymanconsulting.com Ryan Honeyman

      Thanks Mark. Glad to hear it was helpful.

  • http://www.advancehumanity.com/ Travis Hellstrom

    Really great article Ryan.

    So excited for your book and seeing you at the Retreat in October!

    If you wanna see Ryan being awesome a little more, here he is: http://www.entheos.com/Everyday-Humanitarians/session/Ryan-Honeyman/free

    • http://www.honeymanconsulting.com Ryan Honeyman

      Awesome, indeed. Thanks Travis. Loved our interview a while back.

      • http://www.advancehumanity.com/ Travis Hellstrom

        Me too. :)

  • stefandoering

    Huh. Very interesting. And helpful. Here in NYS it is all very new and been wondering which I should go after. Seems like Benefit Corp. is sufficient, unless getting the third-party endorsement is essential, yes?

    • http://www.honeymanconsulting.com Ryan Honeyman

      Hey there-

      Happy to answer your question.

      As a word of caution, I’m not a lawyer, so I recommend you consult an attorney that is an expert in benefit corporations for professional advice. You can find a list of attorneys at benefitcorp (.) net.

      Here’s my two cents:

      The benefit corp is a great legal foundation to build your business. It allows you to scale your business, take on investment capital (if needed), and protect your social and environmental mission for the long term. It’s an opportunity for social entrepreneurs to incorporate their values into their legal foundation.

      While the benefit corporation is a good base to build your business, the Certified B Corporation adds third-party credibility that verifies that your company does what it says.

      Many companies, like Patagonia, are both legally incorporated as a benefit corporation and also certified as a B Corp. This “double-whammy” is a great strategy for many entrepreneurs.

      B Corp certification will give you a fantastic set of benefits, such as access to the community of over 1,000 B Corps worldwide, the ability to use the “Certified B Corp” logo, more press/media attention, and a host of other discounts and services offered by B Lab.

      In fact, I’m going to discuss this topic more next week. Stay tuned for my upcoming article on the benefits of becoming a Certified B Corp.

      Hope that helps,

      Ryan

      • Stefan Doering

        Hi Ryan,

        Very helpful. So, you can become BOTH a Benefit Corp. and get B-Certified, or just one or the other?

        Thank you again, for this.

        • http://www.honeymanconsulting.com Ryan Honeyman

          Stefan-

          You can become both.

          It’s helpful to think of a hypothetical. For example, let’s say you are starting a coffee company in California.

          In order to add credibility and brand value to your company, you decide that you want to get your coffee Certified Organic. This is a great decision because Organic certification appeals to the types of customers you want. It might even help you garner some media attention and attract prospective employees that share your values.

          However, the Organic Certification is separate from your corporate form. In this hypothetical, your attorney or accountant might say “It’s time to incorporate your business in California. Do you want to be an LLC, a C corporation, or an S corporation? Each has different tax implications and requirements.”

          Then, your attorney would talk to you about the benefits and drawbacks of each type of corporate form. Your corporate form is a completely separate piece that is governed/administered by the State of California.

          This analogy is similar to the differences between Certified B Corps and benefit corps.

          B Corp certification is like the Organic certification. It’s an external, third-party “seal of approval” (administered by B Lab) that shows that you have met the minimum standards of social and environmental performance. You would have to pay an annual B Corp certification fee to B Lab, and you can use the Certified B Corp logo on your marketing materials (in addition to a plethora of other benefits).

          As with Organic certification, your B Corp certification is not a corporate form that allows you to do business in the State of California. That is what the benefit corporation is for.

          So, instead of choosing to become an LLC, a C corp, or an S corp, in 27 states in the USA (including Delaware, the home of corporate law) you can choose to become a benefit corp. This allows entrepreneurs to bake their values into their foundational legal documents.

          One last point I would like to make.

          Some companies might choose ONLY to become a benefit corporation because they want to legal protection to scale, raise capital, and consider more than just short-term profits when making decisions.

          However, benefit corporations have not been VERIFIED by a third-party non-profit (i.e., B Lab) to have met the rigorous standards of social and environmental performance. That’s why many companies choose to become both benefit corporations and Certified B Corporations–because it gives them both the legal foundation and the third-party verification that is incredibly powerful.

          Thanks for the great question.

          Ryan

        • Stefan Doering

          Hi Ryan,

          Excellent response and the analogy is quite useful to figure out how best to proceed.

          Since we’re already a sub-S, we’ll go with the B-Corp certification.

          Thank you again for your assistance in this.

        • http://www.honeymanconsulting.com Ryan Honeyman

          Sure Stefan.

          One last point of clarification.

          B Lab requires Certified B Corporations that are incorporated in one of the 27 states that have passed benefit corp legislation to reincorporate as a benefit corporation within two years.

          This is because while becoming a Certified B Corporation is a fantastic step in the right direction, B Lab feels that until entrepreneurs have the legal protection to consider more than just profits, then we are not fundamentally shifting the “business as usual” paradigm.

          This requirement (i.e., being required to change your corporate form) is the #1 reason why many companies choose not to get certified as a B Corp.

          At first, I was against this requirement. I had spoken with many businesses that were interested in becoming a Certified B Corp, but said it was too burdensome to change their corporate form.

          However, I now believe that this is the right decision. If we are truly going to redefine success in business, then we have to build our values into our legal foundation. It also keeps the B Corp community very high quality.

          And, while changing your corporate form is somewhat of a hassle to do, companies like Patagonia, Seventh Generation, New Belgium Brewery, Etsy, Method, and other big name B Corps have also had to do it.

          Now they are seen as thought leaders as the market shifts dramatically towards rewarding companies that use business as a force for good.

          More info on the legal roadmap for Certified B Corps here:

          http://www.bcorporation.net/become-a-b-corp/how-to-become-a-b-corp/legal-roadmap

          Cheers,

          Ryan