Benefit Corporation Aka The “B Corp”
Benefit corporations are a relatively new type of business entity. Originally implemented by legislation in Maryland in 2010, these entities can now be formed in 36 states. But, as with most new things, there is a lot of confusion surrounding benefit corporations. You’ll find the answers to all of your benefit corporation questions below:
What is a benefit corporation?
A benefit corporation is a for-profit corporate entity that, in addition to profit, also takes society and the environment into consideration when making decisions. Benefit corporations allow directors to make decisions that aren’t purely in the interest of profit.
How is this different from a regular corporation?
Corporate law, stripped down bare, states that directors are responsible for acting in the interests of their shareholders, and for maximizing the value of the shareholders’ shares. This means directors of regular corporations could be vulnerable to lawsuits if any shareholders feel that the director is not making the proper decisions to maximize the value of their shares. In a benefit corporation, however, it is a director’s responsibility to consider how a decision will not only affect profit, but also how a decision will impact society and the environment.
For example, say manufacturing a product cheaply in Brazil would require 10,000 acres of rainforest to be destroyed. Producing the same product in the United States would cost more to produce (and reduce profits), but no rain forests would be destroyed. If the director of a typical corporation proceeded to manufacture the products in the United States, he or she could be sued by shareholders who thought the director wasn’t attempting to maximize the value of their shares. On the other hand, the director of a benefit corporation would be able to choose this direction if the decision were perceived as having made a material positive impact on society or the environment.
Why would someone form a benefit corporation?
The most basic answer is that a director or business owner wants to use their business not only to make profit, but also to have a positive impact on society or the environment. Below, you’ll find some other reasons why someone would form a benefit corporation:
- You want to ensure the corporation’s mission is maintained over time. The formation documents will require the corporation to maintain certain standards and values throughout its existence.
- You want to differentiate your corporation from competitors and appeal to a target audience that is socially and environmentally-conscious.
- You want the ability to choose who you sell your corporation to. Unlike a normal corporation (where the directors are responsible for finding the best selling price to maximize value for their shareholders), a benefit corporation’s directors can choose to sell at a lower price to a buyer who they believe will best uphold the benefit corporation’s mission and values.
What kind of standards does a benefit corporation need to meet?
Although laws and standards vary state by state, in general, benefit corporations need to meet three different requirements:
- Corporate purpose must create a material positive impact on society and the environment.
- Benefit corporations are required to consider decisions’ impacts not just on shareholders, but also employees, the community, and the environment.
- Benefit corporations are required to make available to the public, a benefit report (annually or biennially, depending upon state) that assesses their overall social and environmental performance. In most states, this performance must be measured against a third-party standard.
Are benefit corporations taxed differently than regular corporations?
No, you can still choose to be taxed as an S or C corporation, and there are no current tax benefits in place simply for being a benefit corporation.
Does my benefit corporation need to be certified?
No, benefit corporations do not need to be certified by any entity in any state. There is a nonprofit corporation called “B Lab” that has offered “B certifications” to corporations in recent years, and many people mistakenly use the term “B corp” to describe both these B-certified corporations and benefit corporations. Your benefit corporation does not need to be certified by B Lab in order to be a benefit corporation.
How do I form a benefit corporation?
To form a benefit corporation, you’ll need to file articles of incorporation in a state that recognizes benefit corporations.
In some states, like Idaho, you can simply tick a box on the standard articles form provided by the state. In other states, you’ll have to provide specific information in your formation document to meet the requirements.
At Northwest we offer free benefit corporation articles for several popular states:
- Arizona Benefit Articles of Incorporation
- Arkansas Benefit Articles of Incorporation
- Delaware Benefit Certificate of Incorporation
Can an existing corporation or company become a benefit corporation?
Yes, an existing entity can become a benefit corporation by amending its formation documents. Laws concerning benefit corporations vary slightly from state to state, but most states require a super majority 2/3 vote by shareholders to make the switch.
Where can I form a benefit corporation?
You can currently form a benefit corporation in the following states:
District of Columbia
What are some example of benefit corporations?
Despite being a relatively new type of corporation, there are many benefit corporations you are likely to be familiar with already. Some well-known benefit corporations include:
- Ben & Jerry’s
- Warby Parker
Do I need a registered agent for a benefit corporation?
Absolutely! A registered agent performs an essential role, accepting service of process and other legal documents on behalf of your benefit corporation (or other LLC or corporation).
When you sign up for Northwest’s registered agent service, it’s a flat rate yearly price of $125 a year. Any documents we receive locally for you are uploaded into your online account immediately. Served with a lawsuit? We can email up to 4 people and your attorney. We also provide annual report reminders, access to state forms and much more.
Not sure if a benefit corporation is right for you? Learn more about other kinds of corporations on our Types of Corporations page.