What is a B Corporation - How Does it Work?

Questions and Answers about Forming and Running a B Corporation

Benefit Corporation
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What is a B Corporation?

A B corporation, or benefit corporation, is a special kind of corporation with the dual purpose of making a profit for the shareholders and furthering socially beneficial practices. These social benefit practices can include environmental protection, best practices, employee welfare, promoting volunteerism, or a variety of other social welfare initiatives. 

B dual purpose of a benefit corporation - making a profit and doing public good - is built into its by-laws. This shields the corporation from lawsuits by shareholders claiming that profits have been diluted. 

As of August 2019, 34 states had passed laws allowing the formation of B corporations, and several other state laws were in process.

How do I form a B Corporation?

First, you will need to find out if your state allows B corporation formation. There are two ways to form a B corporation: By registering an existing corporation as a B corporation, or by forming a new B corporation.

To form a new B corporation, you must register the corporation in your state. In New York, for example, you form a B corporation by filing a certificate of incorporation (similar to articles of incorporation). The New York State Division of Corporations says,

"The certificate of incorporation must include all of the statements required by BCL §402 including the corporation’s business purpose. Additionally, the certificate of incorporation must include a statement that “The corporation is a benefit corporation under Article 17 of the Business Corporation Law.”

The process to convert an existing corporation into a B corporation is different for each state. in Illinois, for example, you would need to change your Articles of Incorporation to make this change to a B corporation. In Maryland, you would need to file Articles of Amendment to the Articles of Incorporation. Some states

To find out more about how to form a new B corporation or to convert an existing corporation to a B corporation in your state, go to the website of your state's business division, usually under the state secretary of state website. 

How does a B corporation become certified? 

Not all B corporations are certified, and certification isn't required for any B corporation. B corporations may choose to be certified to show their commitment to what's called the "triple bottom line" of profit, people, and planet."

B Lab, a non-profit that certifies B corporations, says the certification process "assesses the overall positive impact of the company that stands beside it." To become certified, a company must achieve a minimum score on a B Impact Assessment and change "legal governing documents to require their board of directors to balance profit and purpose."

If you would like your B corporation to be certified, you must undergo a dual process: 

Certification by B-lab, a non-profit organization. The certification process includes: 

  • Taking an impact assessment and receiving a minimum score of 80 out of 100
  • Agreeing to make certain legal changes to your corporation's articles of incorporation, and 
  • Paying an annual licensing fee to B-lab. 

Changes to corporate structure. You must meet state requirements for B corporations, receive board and shareholder approvals, and file amended articles with your state. 

The "Certified B-Corp" mark is, according to the New York Times"a sign that the company is committed to meeting standards that go beyond financial benchmarks." 

How is a B Corporation taxed?

Benefit corporations are still for-profit institutions, they still must make a profit, and they are taxed the same as other corporations. Benefitcorp.net says "Intentionally, model benefit corporation legislation provides no tax, investment or procurement incentives for benefit corporations." 

What reports must be filed?

Benefit corporations must issue annual reports, the content and timing of reports differing from state to state. In general, according to Benefit Corp Information Center, reports must include:

  • Ways in which the benefit corporation "pursued general public benefit" during the year
  • Ways in which the benefit corporation "pursued a specific public benefit," according to its stated purpose
  • And circumstances that hindered general or specific public benefit during the year. 

In addition, the report must name the benefit director or officer, include that person's compensation, and a statement by the benefit director regarding compliance with stated purpose. 

What kinds of benefits do B corporations pursue?

The list is long. Here are some examples: 

At King Arthur Flour, employees have paid volunteer time, and the company is pursuing solar efforts and energy monitoring, The company is working on its non-GMO stance and is increasing charitable financial giving. 

Patagonia Works specific benefit statement includes: A contribution of 1% of annual net revenue to "the planet," building the best products, conducting operations causing no unnecessary harm, and sharing best practices with other companies. The company's is also pursuing efforts in "providing a supportive work environment." 

If you are interested in finding more B corporations to learn about what they do, visit the B-lab website and "Find a B corporation." 

 Do I need an attorney to form a B corporation?

It's always best to have an attorney help file the documents needed to form a corporation. Because B corporations are still new, it's even more beneficial to have the services of an attorney, to make sure the appropriate documents are filed correctly.