B Corp vs. Benefit Corporation: Similar Names, Different Duties

With all this “B Corp” buzz in the air, it’s time to get one thing straight: the Benefit Corporation and the “B Corp” are not created equal. The terms are often used interchangeably, and it’s not necessarily wrong to say “B Corporation” or “B Corp” to informally describe a Benefit Corporation either.  People understandably confuse the two, since both similarly aspire to cement a social or environmental purpose in a company’s mission and corporate governance structure.

But there is still a key difference between the pair: the benefit corporation is a legal entity recognized under a state’s corporate laws, while the “B Corporation” (or B Corp) is a certification conferred upon a company by a certifying organization.  A company can be a B Corp without being a Benefit Corporation – and vice versa – but it’s important to know that while these two sound similar enough at first glance, they actually function fairly differently from one another.

What is a B Corp?

A B Corp designation is obtained via a voluntary certification process undertaken by companies that want to label themselves as “sustainable businesses.” When a company opts for B Corp certification there is no legal filing required, no paperwork to send to the Secretary of State, and no separate corporate formalities to consider.  Instead, an aspiring B Corp submits itself to an audit-like process whereby a nonprofit group called “B Lab” measures a company’s performance against strict social and environmental standards.

The process begins with an assessment of a company’s governance, along with its employer, community, and environmental practices. B Lab also considers whether the company is guided by a socially & environmentally-focused business model.  Upon competition of the “B Impact Assessment,” B Lab conducts an assessment review to determine if further disclosures or documentary proof are necessary.  Once a company is “B-Corp” certified, it joins a community of more than 800 “purpose driven” corporations that have expressly committed to creating “a benefit for all stakeholders, not just shareholders.”

What is a Benefit Corporation?

Benefit corporations are legally recognized corporate entities.  While very similar to the traditional for-profit corporation, they differ because of added requirements and duties. Companies incorporating as benefit corporations must adopt higher standards of purpose, accountability and transparency.  In order to meet those higher standards, benefit corporations have to expressly commit to a “general public benefit” purpose in their articles of incorporation.  A general public benefit is one that makes a “material positive impact on society.”  There are even some states that either allow or require that benefit corporations identify an additional specific public benefit purpose.

By creating a higher standard of purpose, benefit corporations also create an affirmative duty that directors and officers uphold and pursue the specified social and/or environmental purpose along with turning a profit.

Additionally, in order to meet the added transparency requirement, benefit corporations must publish an “Annual Benefit Report,” which includes, among other things, a description of the ways in which the benefit corporation pursued a public benefit and the extent to which such benefit was created.   The Annual Benefit Report must also be assessed against a third party standard such as the one provided by B Lab.

With those differences in mind, don’t lose sight of the unifying goal shared by B Corps and benefit corporations – promoting the power of business to make positive social and environmental changes in communities worldwide. Whether you choose the certification route (B Corp), the incorporation route (Benefit Corporation), or both (your business can be both!), opting for any or all of them distinguishes your company as a sustainable business committed to making a positive social impact.  And that is good for everyone!

If you have more questions or if you think the benefit corporation is right for your business and want to get started on the process of forming one, we can help. Give call us at 1(877) 692-6772 or leave a comment below!