What Is A B Corp?
What Is A Benefit Corporation (aka B Corp)?
Have you ever found yourself wondering what B Corp actually means? If so, you’re not alone. For social entrepreneurs and consumers alike, the jargon that comes with these kinds of labels and certifications can be confusing, to say the least.
Before we begin, it’s helpful to have a framework for how businesses tend to operate. Most companies are either “for-profit” or “not-for-profit,” depending on the mission and goals of the founder(s). For-profit businesses, often known as C Corporations, primarily seek to generate revenue and maximize profit, whether for a sole proprietor, multiple partners, members, or shareholders. Directors of for-profit businesses often run their companies with one purpose only: to make money.
On the other hand, “not-for-profit,” or nonprofit businesses and organizations serve a social purpose. These executives reinvest the organization’s profits back towards its mission. Until recently, this legality hindered social entrepreneurs desiring to make money while furthering a social purpose. In response to this need, states began recognizing “Benefit Corporation” as a new kind of business entity starting in 2010. As of current, 37 states recognize B Corp status.
Simply put, a Benefit Corporation is a for-profit entity that is not tax-exempt. These businesses generally operate as traditional C Corporations but must also pursue a “general public benefit.” B Corps have two purposes: They generate revenue and pursue social missions. The overall goal is to combine features of profit and nonprofit entities to positively impact society and the environment.
The Importance of B Corp Certifications
Now, here’s the kicker: A registered Benefit Corporation differs from a certified B Corporation, so it’s essential to know the difference when vetting companies and brands. A registered Benefit Corporation, as described above, is a business entity created under state law. This law allows a company to act as a Benefit Corporation as an alternative to a traditional C Corp.
A business can become a certified B Corp, but only after applying for and receiving a voluntary certification from the B Lab. This nonprofit organization ensures that companies meet the highest verified, social, and environmental performance, public transparency, and legal accountability.
In other words, a B Corp certificate gives a company an additional “seal of approval” for meeting the strictest standards—and this only happens after rigorous vetting and monitoring of performance conducted by the B Lab.
It also includes a B Impact Assessment. A company needs to meet the 80-point bar for certification and reassess and verify their score every three years. There is then a B Corp Declaration of Independence and an annual license fee, which varies by region and the company’s annual sales. For an example of a B Lab Impact Assessment, take a look at Etsy’s Improvement Report.
How’s All This Tracked?
Overall, a Benefit Corporation provides an appealing business model to mission-driven and socially conscious businesses, impact investors, social entrepreneurs, and even banks seeking both profits and social purpose. Benefit Corporations may, however, encounter more transaction costs than C Corporations since they must create an annual report and maintain a level of transparency.
Benefit Corporations are required to file an annual report and show how their performance benefitted social and environmental goals according to a “third party standard.” Each year, B Corps must create an annual report, make it available online, and deliver it to shareholders within 120 days following the end of the fiscal year. The report indicates how the corporation tried to achieve its “general public benefit” and the extent to which it achieved those benefits. If they weren’t reached, the company must disclose the reasons why. These efforts are then evaluated by a third-party standard to define, report, and assess the corporation’s overall social and environmental performance.
While these annual benefit reports may seem like a lot of work, Benefit Corporations often enjoy a marketing advantage over C Corporations. Think about it this way: they can market their B Corp status and social responsibility in a way that appeals to us as conscious consumers. So it’s a win in their book—and a win in ours.
Check out the B Corp directory online to see if your favorite sustainable businesses are currently certified. And if they’re not, consider reaching out via email or social media to encourage them to do so!