It is not uncommon to get benefit corporations and B corporations mixed up. These two business entities share similar names, making it easy to assume that their duties would also be similar. This is not the case when it comes to benefit corporations vs. B corporations.
How can you tell benefit corporations vs. B corps apart from each other? Let’s take a look at how each entity differs from each other, and what they have in common besides similar names.
What Is a Benefit Corporation?
A benefit corporation is a legal business structure. Entrepreneurs may incorporate as a benefit corporation much like they would a limited liability company (LLC) or corporation.
However, unlike LLCs or corporations, incorporating as a benefit corporation means doing a bit more than simply filing an application. Benefit corporations must meet more requirements than typical for-profit corporations. A benefit corporation must also adopt standards for accountability and transparency.
What Is a B Corporation?
Designated B corporations follow some of the same principles as benefit corporations. They are also for-profit companies that follow standards for accountability and transparency. However, they cannot identify as B corporations unless they first become certified.
We’ll go further in-depth about this certification process in a moment, including how a B Corporation meets their performance and legal requirements. For now, let’s revisit accountability and transparency standards.
Accountability and Transparency: Does the Process Differ for Benefit Corporations vs. B Corps?
The benefit corporation structure seeks to do more than earn a profit. The entity is legally empowered to pursue a positive stakeholder impact. How is this done? Benefit corporations will use their articles of incorporation to commit to a general public benefit purpose. This allows the entity to make a material, positive impact on society. Doing this creates a higher standard of purpose and holds the company responsible for meeting accountability and transparency standards.
Let’s break down what accountability and transparency mean for benefit corporations vs. B corps.
When a benefit corporation commits to accountability, the directors are required to consider the impact on every stakeholder in the company. (Which, as mentioned earlier, should be positive in nature!) This establishes an affirmative duty for directors to uphold. It is one that allows them to pursue the social and environmental purpose that they originally set out to do while continuing to earn a profit.
Transparency is expressed through publishing public reports of their social and environmental performance. This public report is known as an annual benefit report. Key aspects to cover in an annual benefit report include a description of the ways the benefit corporation pursued a public benefit and why this benefit was created. Published annually (as the name implies), the annual benefit report also assesses the benefit corporation’s performance against a third-party standard. For example, standards set by B Lab are often followed by benefit corporations. Note, however, that benefit corporations in Delaware are not required to publish an annual benefit report.
What must B corporations do as far as accountability and transparency is concerned? Are the rules any different? No—they are held to the same accountability and transparency standards as benefit corporations.
How Do Benefit Corporations vs. B Corps Differ?
Similarities in meeting transparency and accountability standards aside, benefit corporations still differ a bit from their B corporation counterparts. State filing fees for benefit corporations tend to be much smaller than B corporations. Benefit corporations are also limited to availability for corporations in 30 states while B corporations are available to every business regardless of its state.
However, one of the greatest differences is found in performance. A benefit corporation’s performance is self-reported. B corporations must go through a certification process that follows three steps.
How the B Corporation Certification Process Works
1. Complete the B Impact Assessment (BIA) test. This test allows you to better understand how your business is actually better for its workers, community, customers, and the environment. In order to pass, you must score at least 80 points out of 200 total points. Taking this test is a key part of your performance requirement. It cannot be skipped over if you want to become a Certified B Corporation.
Worried that you’ll need to pay a fee to take it or that your results will be leaked to the public? Worry not—more than 50,000 businesses have used the free and confidential BIA.
2. Once you have completed the BIA, you will move on to meeting legal requirements. It is recommended that those interested in becoming Certified B Corporations use the legal requirement tool provided by B Lab. This tool allows companies to find out their legal requirement by answering a few questions. Here’s a look at the questions you can expect to answer.
- Which country was the business incorporated in?
- What is the company’s current legal formation?
- Is it a publicly traded or wholly owned subsidiary?
Once these questions have been answered, results will follow for the necessary legal changes. Some companies may need to mend governing corporate documents to incorporate approved Certified B Corporation language. Others may need to reincorporate as a benefit corporation structure. These are, of course, two examples as the changes will vary for every business depending on its location and formation. Ultimately, what the legal requirements set out to do is better determine how the business can integrate stakeholder consideration into a Certified B Corporation structure.
3. You’ve completed the BIA and (hopefully!) passed the test. B Lab will then work to verify your score, and have your business meet virtually with their staff. They will review the completed BIA with you and allow you to submit confidential documents that validate your responses. If everything checks out, you’ll be able to sign the B Corp Declaration of Interdependence and Term Sheet. Congratulations! You’re now an officially Certified B Corporation.
The Bottom Line
These two may share similar names, but as you’ve learned throughout the post their duties are quite different. The one thing that keeps them together? Both types of corporations are committed to doing good in business. Focusing on a higher standard of purpose means they do not want to be the best in the world. They want to be the best for the world.