So maybe you’ve heard the term before, but exactly what is a benefit corporation?
To put it simply, benefit corporations are for-profit, mission-driven structures. They are formed when organizations want to have an expanded purpose beyond simply maximizing shareholder financial returns.
Benefit corporations are a relatively new entity structure, currently allowed in 30 states and DC. To understand the difference between a benefit corporation and a traditional corporation, lets review some key questions about benefit corporations.
What are the Key Features of a Benefit Corporation?
A benefit corporation is legal entity structure that aligns social or environmental value with the corporate mission. Benefit corporations are required to meet certain criteria for accountability and transparency, and balance the impact of their decisions on both shareholders and stakeholders at large. A benefit corporation also has to file an annual report that assesses its overall environmental and social impact against a third party standard, but this report does not need to be certified or audited.
How is this Different from a Traditional Corporation?
Traditional corporations are required by law to maximize shareholder returns. This legal requirement often creates conflict when moral, ethical or questions around social responsibility arise since the answer to these issues may not always align with maximizing profits. Traditional corporations are often forced to make business decisions that have a negative social or environmental impact because they are bound by law to operate the business in a way that will increase financial returns to shareholders.
Is a Benefit Corporation the same thing as a Certified B Corp?
No.
Benefit corporations and Certified B Corps are often confused. While they are complementary, they are not the same thing.
A Certified B Corp is overseen by the B Lab, a nonprofit organization committed to using business a source for positive change. The B Lab offers certifications to companies who meet high standards of social and environmental performance, legal accountability and public transparency. Organizations who seek B Lab Certification are required to achieve a minimum score on a B Impact Assessment must be certified every two years.
While some organizations are both benefit corporations and Certified B Corps, a company can also be just one or the other. An organization does not need to be a benefit corporation in order to become a Certified B Corp, however, it is typically easier for benefit corporations to meet the requirements to become a Certified B Corp.
For a full comparison of the differences between Benefit Corporations and Certified B Corps, see here: http://benefitcorp.net/businesses/benefit-corporations-and-certified-b-corps
Is it hard to become a B Corp?
Assuming that your state of incorporation allows benefit corporations, organizing as a B Corp is a similar process to organizing as any other type of legal entity.
Did my state pass benefit corporation legislation? Find out here.
What is the Tax Structure of a B Corp?
A benefit corporation can be taxed as either an S Corp or C Corp.
What are the “Benefits” of Being a Benefit Corporation?
If you are interested in running a mission-driven, for-profit organization there are many reasons to consider becoming a benefit corporation:
● Your mission is clearly communicated to your customers, employees, and stakeholders.
● You have the legal obligation to weigh your environmental and social impact with shareholder returns, providing a broader framework for corporate decision making.
● You are a leader in your local community and the greater business community
● You may have an easier time raising capital from mission-aligned investors. Benefit corporations have the potential to command higher valuations, achieve greater impact and scale with integrity.
Are There Downsides to Becoming a Benefit Corporation?
As long as you manage the entity properly, there aren’t really any downsides to becoming a benefit corporation. You have the same corporate governance obligations as you would under traditional corporation, and there are also additional benefits such as reduced director liability and expanded stockholder rights.
If your business is passionate about a cause, or simply committed to making a positive impact on the world or local community, a benefit corporation may be a good choice for you.
Professional Bookkeeping Services
Resolve Works provides comprehensive professional bookkeeping and small business accounting services for startup businesses in Minneapolis and St. Paul. We can carefully monitor all of your books and keep your records straight so that you have peace of mind. To schedule an initial consultation or to learn how we can work with your benefit corporation, contact us today at 612-293-9368, or you can message us at info@resolve-works.com.
