Many of our clients approach us with some variation of “We want to be a B Corp.” What does that mean exactly? The term “B Corp” is often used interchangeably to refer to both benefit corporations and Certified B Corporations, but these are actually distinct. A benefit corporation is a corporate legal entity whereas “B Corporation” is a certification, like Fair Trade or USDA Organic. Adding to the confusion, B Lab, the nonprofit that runs the B Corporation certification, was also a driving force behind benefit corporation legislation, and now requires Certified B Corporations to become benefit corporations if such form of legal entity is available in the state of incorporation.
A benefit corporation is a new type of legal entity that is designed to produce a public benefit, in addition to driving shareholder value. Our article “What is a Benefit Corporation?” provides more details, but generally benefit corporations can be distinguished from traditional corporations in the following ways:
- Mission: Benefit corporations must commit to producing a public benefit for society and/or the environment;
- Governance: Directors must consider the interests of non-shareholders that are affected by the company’s conduct (e.g. employees, local community);
- Transparency: The company has an obligation to report to shareholders on its overall social and environmental performance; and
- Accountability: Shareholders can bring lawsuits to enforce the company’s public benefit mission.
While some version of the benefit corporation has been adopted in 30 states and the District of Columbia, the Delaware Public Benefit Corporation, or PBC, is quickly becoming the gold standard given the integration into the Delaware corporate code. For more information on incorporating in Delaware, see our article Where Should You Incorporate? For more on incorporating or converting to a Delaware Public Benefit Corporation, see our articles Delaware PBC: Is It Right For You? and You’re a Delaware PBC — Now What?
Certified B Corporations
B Corporations are companies certified by B Lab as meeting certain standards of social and environmental performance, accountability and transparency. To measure impact, B Lab uses its B Impact Assessment, a publicly-available assessment tool. It asks a series of questions to assess performance in the following areas: Governance, Workers, Community and Environment. For B Corporation certification, you must score at least 80 out of 200 points on the B Impact Assessment. This information is self-reported, although each year B Labs randomly selects 10% of its certified companies for on-site review.
Beyond this performance requirement, B Lab has a legal requirement that varies depending on the company’s entity type and state of formation. The rationale is to require directors and officers to consider the interests of a broad group of stakeholders (e.g., employees, local community, environment), not just shareholders, and to create ways for shareholders to hold the company accountable to the company’s public benefit commitments. The requirements for corporations depend on the state of incorporation and whether the benefit corporation form is available. For example, if you are incorporated in Delaware, you must convert to a PBC. Requirements vary for other types of legal entities. For example, LLCs must amend their operating agreement within 90 days of certification to include certain provisions regarding consideration of community stakeholder interests. You can check the current legal requirements for B Corporation certification here.
Once you meet the performance and legal requirements, you register with B Lab and pay the requisite certification fees. Annual fees are tiered by annual sales revenues, ranging from $500 for companies with up to $499,999 in annual sales, to $50,000+ for companies with more than $1 billion in annual sales. Once certified, you can use the B circle mark logo and join the community of more than 1,800 certified B Corporations around the world, including Patagonia, Etsy, Ben & Jerry’s and Method Products.