For many people starting companies today, profit is far from the only motivation and goal. Benefit corporations, sometimes referred to as B-Corps, offer companies a chance to integrate the goal of profit with a greater goal to benefit the environment, community, society or world at large. For many startups, benefit corporations offers the chance to balance the needs of a profitable business with the desire to do good.
If you want to incorporate as a benefit corporation, it’s important to work with an experienced corporate lawyer who is keeping up with the ever-changing rules of this relatively new and still-developing business entity. A Priori corporate lawyer can help you decide whether a benefit corporation makes sense for your company and goals.
About Benefit Corporations
Benefit corporations are a specific type of business entity that operates similarly to C-corporations, in that they are for-profit, taxed as a legal person and operate within the same formal construct as any other corporation. There is one key difference, though. Benefit corporations exist not only to create profit, but also to create a general public benefit— a material positive impact on society and the environment. Benefit corporations have this goal of public benefit as a legal goal of the corporation.
How to Create Benefit Corporations
Technically speaking, there are two types of benefit corporations—certified B-corps and general benefit corporations— that are created in different ways.
B Lab Certification
The original concept of a B-corp was developed by the organization B Lab Company as a way to formally integrate social responsibility into for-profit corporations. They now issue certifications to sustainable for-profit businesses that meet rigorous standards of social and environmental performance, accountability and transparency. After the B Lab Company examines the company’s policies, governance documents, products, and practices and determines that they are consistent with the goals of benefit corporations, they issue a certification that allows the company to claim B-corp status.
While the required governance documents cement the principles of B-corps into the company structure, this B-corp certification has no legal status, which has been criticized by some. In addition, B-corps created through this certification process must maintain their certification yearly, which can be onerous.
State-Level Benefit Incorporation
Another way to confer benefit corporation status on a company is to incorporate as a benefit corporation at the state level. Most states have a formal legal benefit corporation entity that companies can incorporate as, thus conferring the benefit corporation principles to the corporation from a legal perspective. Requirements to incorporate as a benefit corporation are generally much less stringent than to complete B Lab Certification, but the same basic concepts must be written into governance and incorporation documents. To find out exactly what requirements your state has for benefit corporations—and whether or not it is an option—consult a corporate lawyer.
Differences Between Benefit Corporations and Other Business Models
Benefit corporations have three key differences in they way they operate than other business models.
Mission and Purpose
Benefit corporations have a mission and purpose to somehow improve the world beyond simply seeking a profit for shareholders. Actions considered to further the mission are always in the best interest of the benefit corporation. This purpose is written into the operating agreement of the corporation, and states require it to be upheld or risk losing benefit corporation status.
Stakeholder Primacy vs. Shareholder Primacy
Traditional corporations operate according to the principle of shareholder primacy—the idea that directors and executives have a responsibility to make decisions in the best interests of shareholders and profit. Benefit corporations, on the other hand, hold to the principle of stakeholder primacy. This means that the best interests of all stakeholders, including the mission, employees, suppliers, customers, the community, the environment and any group singled out for particular charitable benefit, must be considered when making a decison.
These interests must be balanced, with no single stakeholder considered over another. This allows benefit corporations to make decisions that could have a potentially negative financial impact on shareholders if it serves the needs of another stakeholder, such as the environment or workers. Benefit corporations are not just allowed to put the mission first, but actually required to do so under this stakeholder primacy principle.
Accountability and Transparency
Benefit corporations require greater accountability and transparency than other types of corporations. Not only are benefit corporations required to comply with standard disclosures and reporting requirements of all corporations, but they must also publish an annual benefit report in accordance with recognized third party standards for defining, reporting, and assessing the social and environmental performance of the company in furtherance of its mission. In some states, shareholders even have a private right of action to force the company to carry out its mission when the business has failed to pursue or create general public benefit through a benefit enforcement proceeding.
Most benefit corporations are required to make such reports publicly available and to regularly address the concerns of stakeholders. Shareholders similarly have a duty to hold the company to its purpose and serve as accountability partners in the mission.
Depending on your needs and state, the cost of incorporating as a benefit corporation can vary. When you hire a lawyer in the Priori network, forming your corporation typically costs anywhere from $750-$2000. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers.
Why incorporate or certify as a benefit corporation?
Benefit corporations allow community and environmentally-minded business owners to preserve social goals without sacrificing the potential for profit. They protect the social goals of your corporation, even if it is purchased or a key executive or director leaves. With the demand for corporate accountability at an all-time high, benefit corporations appeal to consumers by allowing them to align purchases with values and serve the greater good by purchasing from you. If you hope to do more with your startup than simply make money, benefit incorporation allows you to protect that goal.