Most entrepreneurs know that it’s a good idea to incorporate a startup as soon as possible. But as you consider whether to be a C Corp, an LLC, or a Subchapter S, there’s a lesser-known business entity that might be perfect for your startup - the B Corporation (Benefit Corporation). Several high-profile companies - such as Patagonia, Seventh Generation and Etsy - are certified B Corporations.
ReadWriteWeb: What is a B Corporation?
Sweeney: Benefit corporations, or B Corps, are a sort of hybrid of a standard corporation and a nonprofit. Basically, a B Corp is an entity that exists for the public benefit or common good, but can still earn a profit (unlike a nonprofit). A B Corp has a fiduciary responsibility with regard to the interests of its employees, the community and the environment, as well as its shareholders.
RWW: How do B Corps differ from other kinds of corporations?
Sweeney: Unlike traditional corporations, B Corporations have an underlying purpose of meeting social and environmental standards. Most strive to have a higher accountability, and seek to build growth [yet] support sustainability. The goal of most B Corps is to be a positive instrument for change.
There are also established reporting requirements B Corporations are required to meet relative to their social and environmental performance.
RWW: How long have B Corps been around? Are they available everywhere?
Sweeney: B Corps are not yet available in every state. They are evolving - much like the LLC evolved - gradually across the U.S. Maryland was the first state to pass benefit corporation legislation in April 2010, followed by Hawaii, Virginia, California, Vermont, New Jersey and New York. [Today,] Washington is set to become the eighth state [to allow] B Corps. Some states have introduced or partially passed B Corp-related legislation, including Colorado, North Carolina, Pennsylvania and Michigan.
RWW: Are there tax advantages to being a B Corp?
Sweeney: B Corporations do not yet have a special tax status. They are taxed like a C Corp or S Corp depending on the tax election by the owners. However, a few jurisdictions have provided a tax break to B Corporations that are certified. In Philadelphia, a $4,000 tax break was awarded to up to 25 companies.
RWW: So what, then, are the advantages of being a B-Corp?
Sweeney: The B Corporation creates a legal framework for businesses to remain true to their social goals. By doing so, customers [may be more] likely to gravitate toward the business, especially those customers who believe in similar social goals. This is an opportunity to [earn] support from customers, to differentiate the business from its competitors, and to make a difference in the process.
RWW: What is the difference between a B Corp and a nonprofit?
Sweeney: A corporation has a single focus, namely, to maximize profits for its shareholders. In fact, a corporation is legally bound to make the profit-maximization of shareholders its single focus. Therefore, businesses with “public purpose” goals (in addition to making a profit) were, in essence, acting against their duty to maximize profits. Under a benefit corporation, this singular focus can be expanded into a dual focus where the owners/managers of the business can make a profit, but offset the singular focus on profit maximization with the goal of providing a benefit to society (social good, positive environmental impact, etc.).
RWW: What types of businesses typically file for B Corporation status?
Sweeney: There are currently 533 B Corporations across 60 industries, most in the U.S. There’s one in Canada, and one in the European Union.
RWW: Is being a B Corporation the same as being a Certified B Corporation?
Sweeney: There is a difference between filing Articles of Incorporation with the B Corporation language contained in them (also known as “chartering as a benefit corporation”) and being “Certified” as a B Corporation.
There is a private organization called B Lab (much like the BBB) that provides third-party review and validation as a “certified” B Corporation. This requires that the business, which is chartered at the state level as a B Corp, pay a private third party a fee to review and certify the entity. The state, upon filing the paperwork, looks only to the language specified in the Articles of Incorporation, but does not attest to the sufficiency of the company to meet the standards required of a B corporation.
As explained on the B Labs site: “To be certified by B Labs, a company must achieve a minimum score of 80 points to show positive impact, pass a phone review, submit supporting documentation on a portion of their application and be available for a possible on-site review, for which it will receive advance notice.” It’s important to note that B Labs is a [nonprofit] business, not a governmental agency.