Many entrepreneurs that I meet in my work want to start businesses that have a positive social impact. These entrepreneurs not only want to earn profits, they also want to harness the power of their businesses for social good. For these entrepreneurs, the best way to ensure that their businesses maintain a focus on a social mission is to incorporate as a “Benefit Corporation” or be certified as a B Corporation. These terms are often used interchangeably but they are distinct.
What is the difference between the two?
A Benefit Corporation is a company that is created (incorporated) under corporate law (similar to a C Corp, partnership, or LLC) and as part of this process must consider the impact of its operations on all stakeholders (e.g., the community in which it operates, the environment, the company’s employees and customers, etc.). The company must also demonstrate that it creates a “material positive impact on society and the environment.”
A Certified B Corporation is a for-profit company that has been certified by B Lab, a global non-profit organization. A company receives this certification once it meets specific criteria based on its “social and environmental performance”. The certification is a way for socially conscious businesses to inform their communities, customers, and other stakeholders that they are committed to corporate social responsibility. This certification is similar to Rainforest Alliance, LEED, or Fair Trade labels.
What is the process to become either a Benefit Corporation or a Certified B Corporation?
The process to incorporate your company as a Benefit Corporation is the same as it is with other corporate legal structures (e.g., C Corp or LLC) and you do this through your state’s Corporation Commission or Department of Commerce. The challenge is that not all states recognize Benefit Corporations so you will need to incorporate in a state that recognizes this type of corporation. You will also need to update your operating agreement so that it complies with your state’s Benefit Corporation statute. The cost to incorporate as a Benefit Corporation depends on the state but it is usually a one-time fee between $50 and $300.
In order for B Lab to give full certification to your business as a B Corporation, the entity must be a for-profit enterprise with at least 12 months of operations. As part of the certification process, you must complete a B Impact Assessment, which analyzes the impact of your business on stakeholders and pay an annual fee of $500 – $50,000 depending on the amount of revenue your business generates.
What are the benefits?
- Being incorporated as a Benefit Corporation or a certified B Corporation helps you to build your brand as a socially-conscious business.
- Many potential employees, particularly Millennials, want to work with businesses with a socially minded mission.
- Investors often seek opportunities to invest in business with a social mission.
What are the risk?
- Because of the requirements for incorporating as a Benefit Corporation or being a Certified B Corporation, you can be opening your business to additional public scrutiny.
- There is a cost, in both time and money, to have your business incorporated as a Benefit Corporation or to be certified as a B Corporation.
- By following an approach of social corporate responsibility with your business, you could negatively impact your profits due to the investments in staff and infrastructure required.
Additional Information
To incorporate as a Benefit Corporation: Please contact your state’s Department of Commerce or Corporation Commission
To become certified as a B Corporation: Please contact B Lab https://www.bcorporation.net/