What's the difference between a B Corp and a Benefit Corporation?
First, yes, there's a difference between a B Corp and a Benefit Corporation. The two terms are often used interchangeably, but they are in fact, not the same thing.
What is a B Corp?
A B Corp is a certification - similar to a Fair Trade or No Animal Testing seal of approval - that is administered by B Lab.
"B Lab is a nonprofit organization that serves a global movement of people using business as a force for good. (TM)" - bcorporation.net
There are now over 2,000 B Corp certified companies. And yes, I said companies, because you must be a for-profit company to apply for B Corp certification.
Some well-known examples of B Corp companies are:
Get the full list of B Corp companies here.
How do you become B Corp certified?
To become B Corp certified:
1. Complete the B Impact Assessment and score at least 80/200 points.
You can take the B Impact Assessment for FREE. You don't need to be the CEO or Founder of a socially-minded business to take this assessment, but it will prompt you for some specific financial and procedure information. If you don't have the answer, you can usually say "N/A" or skip and go on to the next question, then come back to answer later.
There are five key areas in the B Impact Assessment: Governance, Workers, Community, Environment, and Customers.
The Governance Impact Area evaluates a company's overall mission, ethics, accountability and transparency.
The Workers Impact Area assesses the company's relationship with its workforce. The section measures how the company treats its workers through compensation, benefits, training and ownership opportunities presented to workers. It also focuses on the overall work environment within the company through management/worker communication, job flexibility and corporate culture, and worker health and safety practices.
The Community Impact Area evaluates the company's community engagement and impact, including topics related to diversity, job creation, supplier relations, charitable giving/community service, and local involvement. In addition, this section also includes options for companies whose business model is designed to address specific community-oriented problems, such workforce development for underserved groups, poverty alleviation through fair trade supply chains, etc.
The Environment Impact Area evaluates a company's overall environmental stewardship including its facilities, resource use, emissions, and (when applicable) its supply chain and distribution channels.This section also includes options for companies whose product or service is designed to address a specific environmental problem, for instance by redesigning traditional manufacturing practices or by producing products that create renewable energy, reduce consumption or waste, conserve land or wildlife, or educate about environmental problems.
The Customers Impact Area evaluates companies whose products or services are designed to address a particular social problem for or through its customers, such as health or educational products. The section focuses on the impact of the product/service and the extent to which it benefits underserved communities. For many companies this section will not apply. - B Impact Assessment
For each question, there are helpful tips and links along the way, to provide guidance on how to answer the question.
Pro tip: When you're writing a business plan for your social enterprise idea, use the B Impact Assessment to double-check your assumptions, and make sure you've addressed the areas that are important to your mission via this tool. For example, as you're writing your business plan, you may not have considered supplier relations and specifically seeking suppliers who are women-owned or minority-owned. The B Impact Assessment asks these questions, so you can incorporate into your social enterprise business plan.
2. Meet the legal requirements for structure. A nonprofit cannot become a B Corp.
3. Make it official by signing the B Corp Declaration of Interdependence and Term Sheet. Certification lasts 2 years; to keep your certification active, you must renew after 2 years. Fees are on sliding scale, starting at $500 annually, for a company of less than $149,999 in gross revenue.
Why should a socially-minded business become B Corp certified? What are the benefits of becoming B Corp certified?
B Labs lists many reasons to become B Corp certified, but they boil down to a couple key reasons:
- Accountability: Must maintain certification through B Impact Assessment, dedication to mission regardless of change in leadership, compare results to others and improve score.
- Marketing: Find like-minded companies and ideal customers, attract media coverage.
So, if that's a B Corp, then...
What is a Benefit Corporation?
A Benefit Corporation is a for-profit legal structure that elects to additional accountability, transparency and corporate purpose, beyond traditional profit maximization.
According to BenefitCorp.net, a Benefit Corporation's purpose is "to create a solid foundation for long term mission alignment and value creation. It protects mission through capital raises and leadership changes, creates more flexibility when evaluating potential sale and liquidity options, and prepares businesses to lead a mission-driven life post-IPO."
Can a nonprofit organization be a Benefit Corporation?
A nonprofit cannot be a Benefit Corporation. But, if your organization is a nonprofit, you could start up and own a for-profit subsidiary, and that could be a Benefit Corporation. An example of that would be the Institute for Agriculture and Trade Policy (IATP), which is the 501(c)(3) nonprofit, and their better known subsidiary Benefit Corporation: Peace Coffee. IATP started a for-profit company called Peace Coffee in 1996, and fast forward 19 years later - Peace Coffee became a Benefit Corporation when the Public Benefit Corporation law passed in Minnesota in January 2015.
What is required for annual reporting of a Benefit Corporation?
Although reporting requirements are different in each state where Benefit Corporation legislation has passed, some of the same reporting requirements are the same across the board: social/environmental performance to inform directors and key stakeholders. In all states except Delaware, a Benefit Corporation must have the report use a third party standard as an assessment tool, and release the report to the public.
Examples of the Benefit Corporation annual report:
As of the date this post was written, 31 states have passed Benefit Corporation legislation, and 7 states are working on it.
Find more information about how to become a benefit corporation in your state here.
So the difference is...
A B Corp is a certification. A Benefit Corporation is a legal structure.
Can you be both a Benefit Corporation and a certified B Corp?
Definitely! There are many examples of companies that have both 1) incorporated as a Benefit Corporation in their state, and 2) passed the B Impact Assessment and paid the certification fee to become a B Corp. A few of those examples are thedatabank, gbc and Sunrise Banks.
What effect does a Benefit Corporation or certified B Corp have on tax status?
None. Your business would still be taxed according to the legal status - C Corp, S Corp, LLC, etc.
Now that we have that cleared up...
1 | Is your social enterprise B Corp certified, or a Benefit Corporation, or both? What are some of the benefits you've experienced? Let us know in the comments below!
2 | Download the cheat sheet: "What's the difference between a B Corp and a Benefit Corporation?" by joining the Social Good Impact community.