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What is the difference between a Benefit Corporation and a B Corp?

March 4th, 2012

B Corp

B Corps are not statutory business forms. In fact, any business form can be a B Corp – this is slightly confusing because the name implies you have to be a corporation. In fact a sole proprietorship, partnership, LLC, LLP, co-operative, or any other type of business can be a B Corp.

The way to become a B Corp is to receive certification from B Lab, a nonprofit organization that created the B Corp designation. You can get this designation by demonstrating, through the use of an assessment tool, your organization’s commitment to multiple stakeholders including your workers, customers, suppliers, community, and the environment. You also must pay a fee to join the BCorp community.

Benefit Corporation

In approximately 30 states, there exists what is known as a constituency statute. These statutes vary but in essence they allow the board of a corporation to consider the interests of constituents other than the shareholders when making decisions. A corporation in a state without a constituency statute must do what is in the best interests of the shareholders and the company. The board has a great deal of latitude (in most cases) to determine what is actually in the best interest of the shareholders and the company, but it is not always clear how far this latitude extends.

B Lab launched an initiative to create a new corporate form called the Benefit Corporation to provide some comfort to businesses that want to be accountable to all stakeholders, not just shareholders. They lobbied state legislatures to adopt this new form and some version of it has now been adopted in sixteen states.

New corporations can form under one of these statutes and existing corporations can convert into them. The basic provisions of a benefit corporation statute include:

  • Benefit corporations must have a purpose of creating a general public benefit, which is defined as “a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard.”
  • Members of the board of directors and officers are required when making decisions to consider the effects of their decisions on shareholders, workers, suppliers, customers, community and society, the local and global environment, and the short and long-term interests of the corporation.
  • Benefit corporations must prepare annual reports regarding their pursuit of general public benefit.

Can a B Corp be a Benefit Corporation and Vice Versa?

Yes! A benefit corporation can seek certification as a B Corp. And a company that is a certified B Corp can convert from its current form to a benefit corporation. Conversion requires a two-thirds vote of all current investors. In some states, investors that vote against conversion have dissenter’s rights which means a dissenting shareholder may require the corporation to purchase at fair market value the shares owned by the shareholder. It is possible that B Corps that are currently formed under regular corporate statutes will be required to convert to benefit corporations to be able to maintain their B Corp certification.