B Corp – A New Type of Corporate Structure

by Diane Vautier on June 11, 2012

I recently learned about a new type of eco-friendly business structure call a “B Corp” or Benefit Corporation. This was particularly interesting to me since I lean green. Here’s what I learned.

What’s a B Corporation?

Most business folks are accustomed to the traditional forms of corporations such as the C Corporation, S Corporation or LLC Limited Liability Corporation, all of whose main objective is the maximization of shareholder wealth. Or it has been, until now.

A B Corporation however is a new legal corporate structure that allows a company to consider factors other than strictly shareholder wealth.  B Corporation’s are allowed under the law to consider things such as sustainability, employee benefits or the environment to be part of their legal obligation to shareholders.  In fact, it’s required that a B Corporation create some sort of general benefit for society as well as for its shareholders and to publicly report on their social performance using third-party criteria.  In essence, it’s a corporation with a social conscience.

Where are B Corporations?

At present, eight US states recognize this new legal corporate structure.  Maryland was the first to jump on board in April of 2010 followed quickly by Vermont in May 2010. Washington has been the most recent addition in March of 2012.

  1. Maryland
  2. Vermont
  3. New Jersey
  4. Virginia
  5. Hawaii
  6. California
  7. New York
  8. Washington

Although only eight states currently make the new corporate structure legal, more states are interested in making socially conscience capitalism available.  Pepperdine University Professor Craig Everett is tracking and reporting on the legislative happenings of B Corporations.  According to him, an additional eleven states are actively reviewing legislation or are trying to reintroduce legislation to make B Corporations a reality. This map is Criag’s, you can follow the action on his regularly updated website.

Benefit Corporation Confusion

There’s always a catch to everything right? And, here’s the confusion with B Corps. There are B Corporations and then there are Certified B Corporations.

To have a legal B Corporation status (the state recognized business structure), a company must incorporate as such in a state where it is legal to do so. As part of incorporation, some states mandate that B Corps have verifiable B Lab Certification to ensure that they’re truly living by the green virtues they claim. Some states do not. Some states simply ask that legal B Corporations abide by third party sustainability criteria but don’t verify that they do so. When certification is required, B Lab is the recognized certification entity.

To be a Certified B Corporation, a company must meet minimum social and environmental performance standards as recognized by a third-party certification organization known as B Lab.  B Lab independently researches and verifies that companies who say they’re socially conscience are in fact, walking the walk of social corporate responsibility and not just green washing. B Labs functions much in the same way as LEED certification does for green building standards.  B Labs certification is available to businesses in all 50 states and around the world.
To recap:

  1. Your company can be incorporated as a B Corporation, using the legal B Corp status, but still may not have to be certified through B Lab if your state doesn’t mandate certification.
  2. Your company can be a certified B Corporation even if you’re not incorporated as a legally recognized B corporation. Certification is open to anyone willing to go through the approval process and maintain the socially responsible B Lab standards.
  3. Both. You can hold both a legal B Corporation business status and/or earn a B Lab Certification.

Over 500 companies have chosen to become certified B Corporations through B Lab and make corporate social responsibilitHomeFree, LLCy part of their core values. Two are based right here in New Hampshire: W.S. Badger(makers of Badger Balm) and HomeFree bakery (makers of organic, allergy friendly treats).

Who Do Benefit Corporations Benefit?

That’s the big question, isn’t it? As an eco-friendly consumer and green lifestyle enthusiast I want to believe that this new designation will benefit us all, including our environment. The skeptic in me though thinks that this well-meaning effort could be easily misused by sly corporate CEO’s, who are eager to find new ways of green washing their actions and to deliver less than stellar investor returns. It may be too early in the game to determine which direction B Corps are moving, but I’m optimistic about the potential to shift our mindset on how we combine sustainability with industry.  What do you think?

 

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{ 2 comments… read them below or add one }

1 Heather Van Dusen June 13, 2012 at 12:41 pm

Quick clarification: the legal entity is called a benefit corporation, not a B Corporation. One registers with the state as a benefit corporation, and one is certified by B Lab as a Certified B Corporation.

Further, no states require a company to be certified by a third party, let alone by B Lab. All benefit corporations must report on their social and environmental impact using a third party standard annually, but that report does not have to be certified or verified by any third party.

Last thing: I’ll reach out to Craig on this as well, but WA has not passed benefit corporation, but a different structure called the special purpose corporation that has rather different parameters.

For more info, see http://www.benefitcorp.net.

2 Diane Vautier June 13, 2012 at 1:10 pm

Thanks for the clarification Heather. It was tough deciphering all the details so this is helpful. I believed Craig did mention that WA passed something similar to but not exactly the same as benefit corporation – I simplified his explanation. Much appreciated. ~ Diane

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