Two distinct means of pursuing corporate social responsibility
In recent years, there has been an increasing trend toward more robust corporate social responsibility initiatives, both in response to investor and market pressures and as a wave of social entrepreneurs pioneer a new way of doing business. In particular, a variety of legal and other tools have emerged to allow companies to pay more attention to the “triple bottom line,” a set of accounting values that takes into account not only profit and other economic considerations, but environmental and social considerations as well. For those companies that wish to undertake corporate social responsibility as a core part of their business model, legal status as a “benefit corporation” and/or certification as a “B Corporation” can be a way to reflect founders’ and investors’ intent to pursue the greater good in tandem with profits.
Although benefit corps and B Corporations use similar terminology and the names are often used interchangeably (e.g., an entity incorporated under a state’s benefit corporation law is often colloquially referred to as a “B corp”), they are very different frameworks with distinct benefits and obligations.
A benefit corporation is a for profit company, incorporated under a state’s benefit corporations law, that has a legal duty to pursue certain public benefits. Thirty states currently have such laws in place, including New York, California and Delaware.
In New York, Article 17 of the Business Corporations Law governs the formation and governance of benefit corporations. A corporation organized under Article 17 is required to pursue a “general public benefit,” defined as “a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard, from the business and operations of a benefit corporation.” New York benefit corporations may also undertake one or more “specific public benefits,” including providing products or services to low income individuals or communities, promoting economic opportunity, preserving or protecting the environment or human health, promoting the arts, sciences or advancement of knowledge, increasing the flow of capital to other benefit corporations and “the accomplishment of any other particular benefit for society or the environment.” Other legal obligations a company takes on in incorporating as a benefit corporation in New York include using specific language on all stock certificates and the filing of an annual report.
In incorporating as a benefit corporation, or electing benefit corporation status at any time after formation, a company can achieve the important limited liability and other protections of a corporation while baking into its core purpose a metric other than maximizing profit. This gives both principals and investors certainty that the corporation will continue to pursue its stated social or environmental mission.
A B Corporation or “B Corp” is a business -- that may or may not also be a benefit corporation under applicable state law -- certified by a nonprofit called B Labs as having met “rigorous standards of social and environmental performance, accountability, and transparency.”
In order to be certified as a B Corporation, a company must complete and achieve a certain score on a B Labs assessment relating to social and sustainability metrics, conform to certain legal requirements in its organizing documents, enter into a term sheet and agreement with B Labs and pay a sliding scale fee. More information may be required by B Labs, and in some states companies need to elect benefit corporation status under state law and/or amend their corporate documents to reflect certain language. Certain reporting, possible inspection and other obligations are also required to maintain certification, which must be renewed every two years.
Certification as a B Corporation can have significant marketing value. In B Labs’ own words, “B Corp is to business what Fair Trade certification is to coffee or USDA Organic certification is to milk.” The certification, symbolized by an identifiable logo that can be used on company materials, may send strong signals to investors and customer as they make choices regarding the businesses they choose to invest in or patronize. The certification can also help a company solidify its commitment to a social or environmental mission and plug the company into a community of socially-responsible businesses with access to benchmarking data and strategies for pursuing sustainable and responsible goals.
Legal status as a benefit corporation and certification as a B Corporation can both be helpful tools for achieving corporate social or environmental objectives. Both can also have significant marketing value, communicating to potential customers, investors and employees that the company is more dedicated than average to social and environmental goals. The tools may be used separately or in tandem, and should be thought of as two distinct mechanisms, either one of which, or both, may be right for your organization.
For any questions regarding benefit corporation and B corporation status, including formation, governance and annual reports, please be in touch.