Benefit Corporation vs B Corp: What's the Difference?

Benefit corporations and B Corps are usually considered synonymous to aspiring impact investors. But, that’s not the case. Check out my comparison to make an informed decision.

Obviously, anyone who starts a company wants to generate some sort of revenue or profit through the endeavor. But, sometimes, these benefits are not restricted to financial gains.

So, what do you do if you want your business to be profitable yet deliver the greater good to society and the environment?

It’s simple, apart from your primary business strategy, you include principles that promote environmental sustainability and social responsibility into your business plan.

Although it sounds counterproductive, such companies are attracting millennial impact investors and slowly taking over the market.

If you want your business to stay relevant in the long run and target a triple or quadruple bottom line, you have two options to choose from.

You can either verify your company as a benefit corporation or get a B Corp certification. What is the difference between a benefit corporation and a B Corp when both of them seem entirely synonymous?

If you have the same question in your head, I have compiled this benefit corporation vs B Corp debate to help you out.

Benefit Corporation Definition

First, let’s start by defining options individually. A benefit corporation is a legally approved business entity classified under the heading as a for-profit business.

Business owners usually classify their companies under the benefit corporation umbrella to justify their claims for environmental and social impacts. Naturally, there are some investment considerations for a benefit corporation before they are legally labeled.

The main requirement is that they should show a tangible impact on society’s well-being and the environment. Companies have to submit relevant legal documents when creating this type of corporation to prove their approach towards positive impact.

Similarly, they should consider how the consequences of their impact measures will affect their stakeholders and shareholders while adhering to corporate leadership laws.

One aspect that sets benefit corporations apart from philanthropic movements and trust funds is that they make material profits and provide their investors with monthly dividends.

To work for the causes they believe in, these corporations use a triple or quadruple bottom line approach, where they earn ample profits while maintaining positive ESG impacts.

However, since these benefit corporations generate profit, their investors and stakeholders do not get tax exemptions in non-profit organizations.

Key Features of Benefit Corporations

Before I start defining the other side of the coin, the B Corp organizations, here are some basic features of benefit corporations that set them apart from their counterparts.

Benefit Corporations Have A Specific Mission

Benefits corporations are for-profit entities that work with a clear mission in mind. To be verified as a benefit corporation, a company should include one or more public benefits in its business charter.

These missions and motives make up its statement of purpose, which will later work to establish its identity as a benefit corporation. Additionally, the statement of purpose has a pivotal role in shaping its strategies and business decisions in the future.

Now, benefit corporation rules are not specific about the purpose the company chooses. For example, if a company states ‘public benefit’ in its statement of purpose, the benefit can range from medical or cultural to economic or educational.

However, the purpose should be broad enough to calculate the company’s development based on impact and should be specific enough to allow the company to devise acceptable policies.

Fiduciary Standards

The Fiduciary Standards of a benefit corporation are different from other for-profit organizations. In standard corporations, the board’s main concern is to maximize profits and shareholder value.

On the other hand, in the case of benefit corporations, the board must also take the public benefit purpose defined in its charter while making crucial decisions.

This means fiduciary decisions for a board on a benefit corporation are more complex and require specific considerations than standard corporations.

Most of the time, this leads to conflict as well; that’s why benefit corporations have laws that minimize board members’ liability.

Stakeholder Decisions

Stakeholders or impact investors who choose to invest their funds in a benefit corporation can take action if the board makes improper decisions regarding the company’s purpose.

For example, suppose the board sends out a derivative for a decision that does not correctly balance the company’s interests. In that case, stockholders who own at least 2% of the company’s stock can intervene.

Transparency

Benefit corporations are also required to maintain transparency. They are required to submit regular impact reports regarding their public benefit purpose to their stockholders.

Furthermore, the board can decide whether they want to submit this report more than twice a year, release it to the public, or have it reviewed by a third party.

B Corp Definition

Now that you have all the details about a benefit corporation and its works, I have provided a comprehensive discourse about B Corps to highlight the benefit corporation vs B Corps debate.

An important thing to remember is that benefit corporations, and B Corps are not poles apart. Instead, B Corps are an extension of the benefit corporation concept.

You see, once a company is certified as a benefit corporation by maintaining proper accountability and setting specific public benefit purposes, they can go the extra mile by getting B Corp certification.

This means every company that verifies itself as a B Corp already attained benefit corporation status at some point in its past.

B Corp certification is a third-party evaluation. The system checks the applicant company rigorously based on the following aspects.

Social performance measurements
Environmental impact measurements
Public benefits accountability
Transparency

Another aspect that sets the B Corp certification system apart is that it involves fees payable by the company for future audits. This ensures the company’s compliance with B Corp’s mandatory standards at all phases of development.

That’s why becoming a B Corp certified company is only recommended for organizations that are ready for regular scrutiny and frequent audit expenses.

See Related: Best BlackRock SRI Funds

Key Features of B Corps

Even though B Corps are an extension of benefit corporations, there are some unique investment considerations for a B Corp that organizations should know before they sign up.

I have listed down critical features of B Corps so you can decide whether the step is realistic and beneficial for your company or not.

Seal of Approval

While benefit corporations are legal entities that target material profits and a mission purpose, B Corps require specific certification from B Lab. This is a non-profit organization founded back in 2006.

Companies that strive to become a B Corp and enhance their reach towards impact investors will have to pay an application fee, meet specific standards to receive certification, and become a B Corp member.

You can think of B Corp membership as other business certifications like LEED, Fair Trade, or the Rainforest Alliance.

However, unlike these certifications, B Corp concentrates on its impact mission and entire business model rather than the potential of its products and services.

Most importantly, even if a company achieves the seal of approval as a B Corp, it is not the end of the story. Instead, the company must apply for re-certification every two years to make sure it stays committed to its mission.

See Related: Best Impact Investing Jobs

Membership Fee

More than anything else, the membership fee sets B Corp certification apart from the benefit corporation status. Companies under the B Corp umbrella have to pay fees according to their annual revenue.

Based on the rules set by B Lab, companies that have sales lower than $2M have to pay $500 annually to maintain their B Corp certification.

B Lab uses this amount to conduct scrutiny and evaluate B Corp companies to stay compliant with their impact missions.

B Corp Perks

Apart from the speculated benefits of attracting impact investors, B Corp organizations get numerous additional perks. Firstly, they get discounts at B Lab’s partner companies like Intuit, Inspire Commerce.

Secondly, they can access pro bono legal services when the need arises. Besides that, these companies get significant exposure in advertisement campaigns held by B Lab.

Thirdly, B Corp companies can include their certification in their advertisements and even on their product labels to increase awareness about their brand mission.

This appeals to customers who target sustainable consumption.

Lastly, the certification helps the companies promote the public good and sustainability aspects they believe in globally.

See Related: Three E’s of Sustainability

Benefit Corporation vs B Corp

After establishing the individual definition and features for benefit corporations and B Corps, it is time for the ultimate benefit corporation vs B Corp showdown.

Here’s a detailed overview of the main differences between benefit corporations and B Corps to help put things into perspective for you. The main difference is that B Corp certification is a voluntary choice.

The company can drop this choice if it feels it no longer believes in the cause or doesn’t want to spend further resources for the mission.

However, the same cannot be said for benefit corporations. You see, becoming a benefit corporation requires permanent changes to the business model of a company.

Once a company decides to become a benefit corporation, it is signing up for an irreversible change.

Another key difference is that while the B Corp status is recognized across the country, benefit corporation laws differ in every state. Moreover, some states are yet to jump on the bandwagon and reform their legislation to accommodate benefit corporation laws.

Lastly, another significant difference is that while B Corp certification requires upfront and recurrent payments, becoming a benefit corporation requires nothing more than modifying your business model to accommodate your target impact.

Now for the similarities, here are the motives both benefit corporation and B Corp certifications aim to achieve for businesses.

They help companies build good PR value amongst impact investors and attract responsible consumers.
Both certifications help companies specify their mission and business aims to competitors.
Each of the options is an ideal way for companies to step up for the greater good and contribute positively to society and the environment.

Benefit Corporation Examples

Before concluding my benefit corporation vs B Corp comparison, I have provided some famous examples from each sector so you can identify the differences.

Patagonia

Patagonia is a well-known apparel company that became one of the first corporations to sign up for California’s benefit corporation certification. The company’s mission is to minimize negative impacts on the environment by reducing its carbon footprint while manufacturing its products.

King Arthur Flour Company

With its headquarters in Vermont, this is one of the oldest flour companies in the US. The company attained benefit corporation status by providing 100% stock ownership to its employees.

Similarly, the company commits itself towards positive environmental impacts by promoting clean manufacturing processes and introducing recycling programs.

B Corp Examples

Here are a few examples of famous companies that have a B Corp certification from B Lab.

Ben & Jerry’s

One of the most popular ice cream brands in the world, Ben & Jerry’s aims to stay relevant and commit to positive impacts by staying B Corp compliant.

The company works to make a positive social impact by eliminating economic inequality on a national and global level. Similarly, it imports its ingredients from Fair Trade sources and supports multiple activist organizations working against social and environmental injustices.

Eileen Fisher

Eileen Fisher is one of the largest and most popular companies from the fashion industry, holding the B Corp status. The company contributes a large percentage of its revenue to support initiatives that combat climate change and gender inequality.

See Related: The Impact of a Tesla Road Trip

Final Words

Concluding my benefit corporation vs B Corp comparison, here are all the critical differences in a nutshell. Mainly, benefit corporations are companies that commit to a positive impact by reforming their business model according to their state legislation.

On the other hand, B Corp certified companies are benefit corporations that comply with the requirements set by B Lab and work to renew their certification regularly.

No matter which option you choose to advertise your impact measures to consumers and investors, both statuses are practical and beneficial in the long run.

Related Posts