Is a B Corporation or a Benefit Corporation Right for You?

You have a great idea that will help your community. You want to benefit the environment, as well as your bottom line. Everything looks promising. But how should your social entrepreneurial venture be organized?

Many are starting to use the new benefit corporation – or “B corp.” These special corporations are created to both benefit society and make profits, and are now allowed in 31 states. (Click here to see if that includes your state.) In time, the B corp will be available in all 50 states. As well, versions of the B corp are allowed in England and more and more European countries. It is an idea whose time has come.

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The B corp is a unique way for businesses to operate. In the past, a corporation had a duty to its shareholders to only maximize profits. The company’s directors (those in charge) could get in trouble for also considering the environment and other social factors over profits. The B corp changes all that.

In a B corp, the directors can consider society and the environment, in addition to profit. The organizing documents can even name specific public benefit purposes the company seeks to achieve. Some of the specific benefits include:

1. Providing low-income or underserved individuals or communities with beneficial products or services
2. Promoting economic opportunity for individuals or communities beyond the creation of jobs in the ordinary course of business
3. Preserving the environment
4. Improving human health
5. Promoting the arts, sciences, or advancement of knowledge
6. Increasing the flow of capital to entities with a public benefit purpose
7. The accomplishment of any other particular benefit for society or the environment.

The directors can then freely consider the effect of their decisions, not only on the shareholders, but on the community, the environment and other stakeholders.

A key requirement for operating as a B corp is a Benefit Report. Every year, this report is prepared to assess the enterprise’s social and environmental performance. The Benefit Report should be transparent, independent and credible. It should also be provided to all shareholders and (with proprietary data removed) to the Secretary of State’s office and your public Web site.

To make sure that the public benefit is paramount, some states allow a right of action. The shareholders can sue the company for a failure to pursue the public benefit, violations of duty and failure to meet the transparency requirements. As well, a change in the B corp’s purpose, requires a two-thirds majority vote. The new laws allow for public benefit to reign supreme in the B corp.

Is a B corp right for you?

It depends. If the idea of an annual report on all you’ve done for all to see seems like a burden, think twice. You can still do good things in a small, closely held company without the extra reporting. But if you have investors who will only put in money if the beneficial restrictions of a B corp are in place, the die may be cast, which is fine. The B corp is there to accomplish your goals.

For more information on forming a B corp, please fill out the form on this page or call our offices at 1-800-600-1760 or sign up for a free 15-minute consultation.