Benefit Corporation vs. B-corp: What’s the Difference?

Environmental Protection, Natural Reserve, Ecology, Eco
To be certified as a B-corp, you have to go beyond the bottom line.

The term “benefit corporation” has been in use for quite some time. The phrase was first used in the 1990s, and it has gained popularity as more people look for socially responsible companies. But what exactly is a benefit corporation? And how does that stack up against a B-corporation? 

These two business structures have some similarities, but they also have significant differences. We’ll look at the differences between these business models and help you decide which one is best for you, whether you’re an entrepreneur, a small business owner, or an employee.

What is a benefit corporation?

Companies committed to making a positive impact on society and the environment are known as benefit corporations. They do this by reporting their social and environmental performance alongside their financials, which requires them to be transparent about how their actions affect internal operations and business relationships with customers, employees, suppliers, communities, governmental institutions, and so on. 

Benefit corporations must also adopt a legally binding “benefit purpose” outlining their social and environmental objectives. While they are not required to pursue these goals, the benefit corporation standard encourages them to do so to eventually become part of the company’s formal structure.

Furthermore, benefit corporations are independently audited and report on their social and environmental efforts to shareholders and the public annually.

What is a B-corporation?

B-corporations are not necessarily new, but they are becoming more popular as consumers, employees, and businesses seek out socially responsible companies with which to do business. B-corps are for-profit corporations that want to use their skills and expertise to solve social or environmental problems.

B-corporations, like benefit corporations, have a legally binding “public benefit purpose” that they must report on each year. Furthermore, B-corps must follow a set of standards known as “B-Certified Lab’s B Corporation Standards.” 

These standards address legal structure, transparency, independence from shareholders, worker rights, the environment, community impact, and product quality/safety/responsibility.

Companies must pass an assessment and meet these standards to become an officially certified B-corporation. B-corps can choose to become benefit corporations, but they are not required to do so to call themselves a B-corp.

How are they different?

Both benefit corporations and B-corporations seek to have a positive social and environmental impact. They both want their businesses to succeed financially, but they aren’t concerned with maximizing shareholder value, as traditional public companies are.

The most significant distinction between the two is how they report social and environmental performance in addition to financial results. Every year, benefit corporations independently audit themselves (with help from an independent third party). In contrast, B-corps must report to a third party organization each year, which is B-Lab in the case of B-corps.

Furthermore, benefit corporations have legally enforceable “benefit purposes,” whereas B-corporations do not. Instead, they adhere to a set of guidelines that encourage businesses to report their social and environmental impact alongside their financial performance on an annual basis.

As a result, benefit corporations are more likely to use complex data and scientific research to assess their impact. Instead of adhering to specific metrics for measuring progress, B-corps prioritize transparency and accountability to stakeholders.

Another distinction is that B-corporations are permitted to have outside shareholders, whereas benefit corporations are not (though they do not need to become certified B-corps to do this).

The final distinction is that benefit corporations are required by law to consider how their decisions affect all stakeholders, whereas B-corporations are not. Both companies, like other for-profit businesses, must abide by labor laws and environmental regulations.

Who can become a benefit corporation vs. a B-corp?

Anyone who wants to impact society and the environment positively can form a benefit corporation, also known as a B-corp. It is not necessary to be a nonprofit organization to pursue social good through business, which is why more for-profit companies are becoming socially conscious.

If you want to make your company more transparent and accountable in how it manufactures its products or services, you should consider becoming a benefit corporation. If you’re looking for investors who support your social mission, you might want to consider becoming a benefit corporation, as B-corps can have outside shareholders. Benefit corporations, on the other hand, cannot.

Suppose you’re looking for a way to measure your social impact. In that case, you might want to consider becoming a B-corp because the B-Lab process provides independent verification of company claims. You may also require or prefer certification to meet specific legal requirements.

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Which one should you choose?

This is probably the most crucial question to ask yourself if you own a business. Nobody claims that B-corps and benefit corporations are mutually exclusive: companies can use both if they want! It all comes down to what your company expects from its social and environmental efforts, as well as how much time you have to report on them.

Benefit corporations are more likely to make decisions that prioritize stakeholders over shareholders, such as paying higher wages to employees or donating funds to charities, rather than maximizing profits for investors. 

On the other hand, B-corps may make different decisions because they are not required by law to prioritize stakeholder interests over shareholder value (although it is encouraged).

A B-corp may be the right choice for you if you want to prioritize reporting progress on your impact and social or environmental efforts. Suppose you’re more concerned with the legal structure of your company. In that case, benefit corporations are probably what you’re looking for because they can’t sell shares to outside investors or operate for profit.

Things to know before making this decision:

  • Both benefit corporations and B-corps seek to have a positive social and environmental impact.
  • Furthermore, benefit corporations have legally enforceable “benefit purposes,” whereas B-corporations do not. Instead, they concentrate on adhering to a set of standards that encourage companies to report their social and environmental impact alongside their financial performance each year.
  • Benefit corporations are more likely to use complex data and scientific research to assess their impact. Instead of adhering to specific metrics for measuring progress, B-corps prioritize transparency and accountability to stakeholders.
  • Outside shareholders are permitted for benefit corporations, but they are not permitted for benefit corporations.
  • Benefit corporations must consider a specific set of stakeholders, whereas B-corps prioritize the interests of any “stakeholder” in their decisions.
  • B-corps are not required to report on their impact every year, whereas benefit corporations must.

Is the B Corp certification worth getting for your business, and why would businesses want this label on their company?

The B-Lab process ensures that company claims are independently verified. Certification may also be required or preferred to meet specific legal requirements. 

For companies that want to sell their products as sustainable, environmentally friendly, or fair trade certified coffee, the label is required by law in some cases. For other businesses, the label can be a great way to attract customers looking for environmentally friendly and ethical products.

If you want to measure your social impact but don’t have the time or resources to devote to extensive reporting procedures, becoming a B-corporation may be the answer. This certification provides independent verification of company claims if required by law.

The B-Lab certification is only worthwhile if you want to ensure that your company adheres to certain standards, such as being open about how it uses business to do good.

The certification is only available to businesses that meet one of the following criteria:

  • For-profit corporation
  • Corporation, limited liability company (LLC), or registered partnership that meets specific requirements. 

For example, a company must agree to be bound by B Lab’s legal code of conduct and allow an outside party to conduct an annual assessment of its social impact on the environment/community and its financial performance.

Please note: if you are a Benefit Corporation, your company must be incorporated in the state in which it operates. You will not be eligible for this certification if your company is registered as a benefit corporation but is not incorporated in one of the following states where it operates.

  • Washington 
  • Wyoming
  • North Dakota 
  • South Dakota 
  • Missouri
  • Mississippi
  • Michigan 
  • North Carolina 

Is this something that would help attract employees?

B-corporations are for-profit businesses that prioritize social and environmental goals.

This would help attract employees who want to work for companies that positively impact the world around them. Furthermore, many people prefer working for B-corps because they can demonstrate their commitment to sustainability in ways other than simply writing it in their mission statement.

Most B-corps, for example, are required to report on their company’s social and environmental impact using an external metric, such as B Lab’s assessment tool or GIIRS’ rating system, which is based on over 100 different data points, such as employee diversity training programs, disaster preparedness plans for suppliers, and environmental initiatives.

What are the benefits and risks of becoming a benefit corporation vs. a B-corp?

Some advantages of the certification include increased transparency for investors and the ability for consumers to identify companies that use business as a force for good; however, some disadvantages include the fact that not every state currently offers this designation. Because it is less legally binding, the B Corp certification may be regarded as less important than the benefit corporation designation.

Are there any drawbacks or things to know about being a B-corp?

  • A benefit corporation is a for-profit corporation that has been legally designated to serve the public good while also maximizing shareholder value.
  • A B-corporation is an abbreviation for “benefit corporation,” It refers to a legal structure in which shareholders are also stakeholders, meaning they have both ownership rights and responsibilities.
  • The advantages of forming a benefit corporation include the ability to remain privately owned while still providing social or environmental benefits, having no restrictions on what you can do with your profits, and not having to worry about going bankrupt.
  • The risks of becoming a benefit corporation include the possibility of investor lawsuits if something goes wrong, higher taxes because it’s considered a different type of business entity rather than just another form of incorporation, and losing some control over your company if you try to make decisions based on all stakeholder interests.
  • Consider becoming a benefit corporation only if you want more control over how much profit you make or if you’re going to provide social or environmental benefits in addition to making money.
  • If neither of these scenarios applies, we recommend sticking with the traditional corporate model.

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