The Difference Between Benefit Corps and Certified B Corps (And Deciding What’s Right for Your Business)

Most people start a business with one key objective in mind – making a profit. Yet some companies seek out not only to profit but also to provide a tangible benefit to society and the environment. These companies, depending upon a few specific criteria, are classified as Benefit Corporations or Certified B Corporations.

Confused by the difference between the two? Didn’t even realize there was a difference? You’re not alone – it’s one of the most confusing aspects of a recent movement for companies focused on giving back. Benefit Corporations and Certified B Corporations have a lot in common, but there are a few key differences. 

Benefit Corps

To date, 31 states (including New York)  as well as Washington, D.C. have passed laws creating a new type of corporation – the Benefit Corporation (often referred to as “Benefit Corp”).  Benefit Corporation status involves a separate process available to companies in every state. These companies pledge to think about people and the planet in addition to profit (most are committed to a specific social mission), but Benefit Corporations voluntarily work against standards of corporate purpose, accountability, and transparency. 

Benefit Corporations have a corporate purpose to create a positive impact on society and the environment, and are required to consider the impact of decisions on workers, the greater community, shareholders, and the environment. And while Benefit Corporations are required to provide an annual benefit report that is available to the public, benefit corporations do not have to be audited or certified.

In addition to 31 states and Washington D.C., five additional states are currently working on laws for benefit corporation status. You can explore your state’s Benefit Corporation law status here, but as always, it’s best to consult your tax advisor or attorney if you’re considering transitioning to Benefit Corp or Certified B Corp status.

Certified B Corps

Certified B Corporations are similar to Benefit Corporations but not identical. Certified B Corporations (also referred to as “B Corps” or “B Corporations”) are for-profit companies that pledge to achieve social goals as well as business ones and are certified by the nonprofit B Lab to have met rigorous standards of social and environmental performance, accountability, and transparency. It’s similar to USDA’s certification for organic milk or a LEED certification for a green building, with one key difference – a B Corp certification evaluates the entire company (environmental footprint, community involvement, governance structure, worker engagement, etc.) rather than just a single aspect like a building or a product in the examples above.

The broad evaluation is key because it helps to distinguish the companies that are focused on doing good from companies that just happen to do good marketing. There are now more than 1,000 Certified B Corps in the United States, including well-known companies like Ben & Jerry’s and Patagonia. All of these companies share a similar goal in that they are working to redefine what business success is – they are hopeful that companies will continue to compete and do what is best for the world around them.

The government categorizes Certified B Corps as 501(c)3 nonprofits. To become certified, your business may need to amend its governing documents or adopt benefit corporation status (see above) to meet the legal requirements for certification for your state of incorporation and corporate structure. And as with any restructuring, your business should engage key stakeholders, legal counsel, and investors about the usefulness and implications of adopting these legal changes for raising money, selling your business, and directors’ liability. If your business is a corporation, you’ll need to file your amended articles with your Secretary of State within one year. 

Business Benefits

The belief that businesses exist solely to make a profit can have an impact on how companies operate. Focusing on your business’s positive impact on society and the environment comes with benefits. Here are a few to consider:

• Benefit/B Corp status can help companies attract and retain top talent and customers
• Millennials, which represent half of the global workforce, want work with meaning – a recent study by Intelligence Group found that 64 percent of millennials would rather make $40,000 annually at a job they love and care about than $100,000 at a job they find boring or less meaningful
• According to BBMG, 73 percent of consumers consider the company, not just the product, when making a buying decision
• Consumers often align purchases with their values – 86 percent of consumers are more likely to trust a company that shows the impact of its cause efforts, according to Cone Communications

Drawbacks

There are also some drawbacks to consider if you’re exploring the pros and cons of Certified B Corp/Benefit Corp status:

• If you have shareholders, you will also have expanded reporting requirements in order to provide shareholders with enough information to determine if your business is achieving its stated purpose
• If you have shareholders, they can bring charges against the company for not carrying out its social mission (just as they could sue directors of traditional companies for violations of fiduciary duty)
• These designations are fairly new as far as legal entities go, so it’s not entirely clear how courts will interpret mandates to not only seek profits, but to consider potential benefits to society. As such, the impact on raising capital and on how angel investors and venture capitalists could react is still unknown

Getting Started

There are a few legal requirements to consider when thinking about Benefit Corporation or Certified B Corp status. When it comes to your company name, Benefit Corps and Certified B Corps do not need to make any reference to benefit status within the corporate name. You won’t need to alter the name you’ve chosen for your business, nor would you need to tailor your name brainstorming any differently than if you were considering a standard C Corporation. You will be required, however, to state your Benefit Corp/B Corp status in your articles of incorporation, and you may want your articles to highlight a specific purpose (like benefitting the arts, improving public health, etc.)

Finally, the share certificates of a Benefit Corporation must specifically state the benefit nature of the corporation. Certified B Corp and Benefit Corporation legal requirements may vary between states, especially when it comes to provisions relating to shares and their transfer, so be sure to research your local laws.

For entrepreneurs, business owners, workers, and consumers, the introduction of Certified B Corps and Benefit Corporations is an exciting development, because it enables community- and environmentally-minded business owners to preserve their social goals without sacrificing the ability to make a profit. 

Are you using your small business as a force for good?

About the Author:

Sarah Field

I am an author and moderator for the the SBA.gov Community. I'll share useful information for your entrepreneurial endeavors and help point you in the right direction to find other resources for your small business needs. !