Benefit Corporation vs B Corp: What’s the Difference? - Cogency Global

As businesses become more conscientious of their social impact, Benefit Corporations and Certified B Corporations (“B Corps”) are popular options to consider. Both require public benefit purpose, accountability, and transparency. The similarities can cause confusion. Accordingly, it is important to know their differences and requirements to decide which might be the right option for your business. 

What is a Benefit Corporation?

Unlike a traditional corporation, a Benefit Corporation is a for-profit corporate entity type that is not solely profit-driven. A Benefit Corporation must have a beneficial social or environmental purpose and meet increased levels of accountability and transparency. Currently, 37 states and the District of Columbia statutorily allow for the creation of Benefit Corporations. In these jurisdictions, corporations can convert into Benefit Corporations. (An even smaller number of states allow for creation of Benefit LLCs.)

What are the Requirements for a Benefit Corporation?

• Purpose: Benefit Corporations must have one or more general or specific public benefit purposes stated in their charters. Generally, Benefit Corporation statutes do not indicate how specific the purpose should be. They define a public benefit as a positive effect on society and/or the environment in categories ranging from education to science. For example, Patagonia’s purpose is to create products that cause no “unnecessary harm.”

• Accountability: Directors and officers must take the interests of shareholders and other stakeholders, such as the corporation’s employees, the public and the environment into account when making decisions.
  
  
• Performance and Transparency: While state statutes vary on performance and reporting obligations, some require filing annual benefit reports and/or making them available to the shareholders and the public. Generally, the annual benefit report includes: (1) narrative description, which details the corporation’s purpose, how it pursued its mission, and any hinderances encountered; (2) the state’s third party-standard that must be assessed by third-party organizations such as B Lab and Global Reporting Initiative; and (3) a statement showing no conflict of interest between the corporation and the third-party organization.

Some states require that annual benefit reports be sent to shareholders and/or be posted on the company website, while others require annual benefit reports be filed with the secretary of state’s office. For example, California and Florida mandate preparing and delivering annual benefit reports to shareholders within a specific time and posting them on the benefit corporation’s website for public access, Delaware requires Benefit Corporations to send a biennial statement to shareholders articulating how the Benefit Corporation promoted its mission and Minnesota requires filing an annual benefit report with the secretary of state’s office.

What is a Certified B Corporation (B Corp)?

Despite its name, a B Corp does not have to be a corporation and is not limited to certain states. B Corp status is a certification measuring a business’s social and environmental performance that is administered by B Lab, a nonprofit organization. Any domestic or international profit-making business (whether it’s a corporation, limited liability company, sole proprietorship, subsidiary, or franchise) that meets B Lab’s standards and has operated for at least one year can receive B Corp status.

B Lab determines an entity’s qualification through the B Impact Assessment (BIA), which assesses the entity’s practices in relation to its social and environmental performance, public transparency, and legal accountability. The certification process depends on the business’s size and complexity.

What are the Requirements to Obtain a Certification?

•  Purpose: B Corps must have social or environmental purposes.
  
  
• Accountability: B Corps are legally required to take all stakeholders into consideration when making decisions. As such, entities must meet the B Corp legal framework, which varies by country, entity type and incorporation state. For example, LLCs must amend their operating agreements to “include specific mission aligned language” within 90 days of certification. Entities can check the legal requirements using B Corp website’s “Legal Requirement tool.”
  
  
• Performance: An entity must receive a minimum verified score of 80 across all impact areas on the BIA. The BIA is free, and the information is self-reported. The questions depend on company size, sector, and market. An entity must take the BIA every three years to recertify.
  
  
• Transparency: B Corps must publish their BIA overall and category scores on their public profiles on bcorporation.net. Public companies and their subsidiaries must post their entire BIA profile and have additional transparency requirements.
  
  
• Fees: The annual membership fee, which currently can range from $1,000 to $50,000, varies based on the entity’s annual revenue.

Can a Benefit Corporation Obtain B Corp Status?

Benefit Corporations can obtain a B Corp status. For example, Kickstarter and Ben & Jerry’s are both. Some states that statutorily allow Benefit Corporations, like Delaware, only allow Benefit Corporations to receive the certification. For instance, a Delaware limited partnership cannot obtain a B Corp certification.

Advantages and Disadvantages of Benefit Corporations and B Corps

It is easy to confuse Benefit Corporations and B Corps because of their similar name, intents, and advantages. Understanding the differences will help inform decisions over whether to choose one over the other, or both.

This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.