April 2013
To B or not to B
Could your company benefit from being a B corporation?
Many business owners take pride in their company’s financial performance as well as its ability to provide jobs for the community and products or services for customers, while operating ethically and considering their impact on the larger community and the environment.
Some owners would like to take their efforts a step further and focus on not only financial goals, but also social and environmental ones. Current U.S. law, however, compels most corporations to consider investors’ return ahead of other goals. A relatively new type of corporate structure, known as the “benefit corporation” or “B corporation,” provides an alternative: It allows a company to put equal emphasis on certain nonfinancial goals.
Goals go beyond finances
B corporations operate in much the same way as other types of corporations, but they must include social and environmental benefits in their bylaws. They must then report on their progress toward meeting these goals, much as they’d report on financial performance.
In states that have passed laws recognizing B corporations, companies can legally pursue both financial and nonfinancial goals. According to bcorporation.net, a website devoted to explaining the concept, laws facilitating the establishment of benefit corporations have been passed in 11 states and are moving forward in 16 other states.
Besides enjoying the legal structure available under these laws, companies also can pursue B corporation certification. B Lab, the 501(c)3 organization that administers the certification process, provides an independent verification that the firm “meets rigorous standards of social and environmental performance, accountability, and transparency.”
Unlike some certifications, this extends beyond a single product or product line to cover an entire organization. Among the 600-some certified B corporations in the United States are Seventh Generation, a manufacturer of household products; ice cream makers Ben & Jerry’s; and Etsy, an online marketplace for artisans and craftspeople.
Taking the plunge
Business owners who decide to pursue B corporation certification must take several steps. The first is to complete an evaluation form that considers, among other factors, the company’s governance and compensation structures and its environmental practices.
To pass this test, the business needs to score at least 80 out of 200 points and provide documentation to support their answers. There’s also an annual fee of between $500 and $25,000, depending on the company’s sales. Some businesses may need to amend their governing documents.
The benefits of being B
B corporations have the flexibility of aligning investors’ personal beliefs and the company’s goals in a concrete, accountable way. Going “B” can help both prospective customers and investors connect with firms whose goal is to get to the “triple bottom line” — that is, profit, people and the planet — as they operate.
Of course, many businesses, no matter their legal structure, already take into account the societal and environmental impact of their operations. But B corporations allow management to explicitly consider the company’s impact on a wider variety of stakeholders.
Sidebar: Exploring other corporate structures
Several states offer legal structures that may better fit some companies than benefit corporations do. California, for example, allows “flexible purpose corporations.” With this entity, the business’s articles of incorporation must include a statement that it will, in addition to engaging in business, engage in one or more charitable or public purpose activities, or promote a positive short- or long-term effect on employees, customers or the community.
Some states offer a low-profit limited liability company or L3C, which combines the financial purpose of an LLC with the mission of a nonprofit. In Vermont — the first state to allow this structure — L3Cs are organized to accomplish one or more educational or charitable purposes. Here, producing income is not a significant purpose of the organization. Serving the community is.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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