What Is a B Corporation?
Definition & Examples of a B Corporation
A B corporation is a for-profit company that commits to transparency and accountability while addressing social and environmental issues. B corporations can become certified by meeting certain standards related to those goals. B Lab is the nonprofit entity behind B corporation certification.
Here's what you need to know about certified B corporations and how you can apply to become one.
What is a B Corporation?
A B corporation is a special kind of corporation with the dual purpose of making a profit for the shareholders while adhering to socially beneficial practices. These social benefit practices can include environmental protection, employee welfare, promoting volunteerism, or a variety of other social welfare initiatives.
- Alternate names: Benefit corporation, B corp
The 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.
Benefit corporations are still for-profit institutions. They still must make a profit (or at least attempt to), and they are taxed the same as other corporations.
How Does a B Corporation Work?
Businesses can apply for B corporation certification at any stage. Startups can become B corps, as can publicly-traded corporations. In 2020, most B corporations are small businesses.
As of August 2020, 36 states had passed laws allowing the formation of B corporations. Five more states had pending legislation concerning B corps.
How to Form a B Corporation
Whether you're trying to turn your existing company into a B corporation or form a brand new B corporation, the first step is to check your state's laws concerning B corps.
If you're forming a new corporation, you may have to start by filing articles of incorporation or similar documentation. If you're converting an existing corporation, you may need to change your articles of incorporation or file articles of amendment to make the change to a B corporation. Some states require a vote among existing shareholders with a certain threshold that must be reached in order to approve the change.
It's always best to have an attorney help file the documents needed to form a corporation. B corporations are still new, so there may be some confusion when it comes to finalizing all the paperwork. An attorney can help ensure that you're doing everything in accordance with the latest laws.
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. This is usually part of the state secretary of state's website.
State law will also govern the type of annual reporting you need to provide once you become a B corp. In general, reports can be expected to 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
- Circumstances that hindered general or specific public benefit during the year
- The name and compensation for the benefit director or officer
- An update from that benefit director or officer regarding compliance with applicable laws
How a B Corporation Becomes 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 the planet.
To become certified, you'll have to go through the nonprofit B Lab. The certification process involves achieving a minimum score on a B Impact Assessment and making legal changes to corporate documents to ensure a commitment to the triple bottom line. Once certified, you'll pay annual fees to B Lab, which are assessed based on your sales revenue.
Achieving certification as a B corporation isn't just a marketing tactic, so ensure that you're truly committed to the cause before turning your company into a B corporation. After becoming certified, you'll have a legal responsibility to consider the impact of your business's decisions beyond the profits.
What Kinds of Benefits Do B Corporations Pursue?
There are many ways that a B corporation can honor its commitment to public benefits. A company could pay for its employees to spend time volunteering at a food bank, for instance. It could also pledge a portion of its revenue toward environmental causes, or devote a division of its workforce toward developing environmentally-friendly energy sources.
- A B corporation is a for-profit corporation that has committed to considering the social and environmental impact of its business in addition to profit.
- B corporations may or may not be certified B corporations.
- The process for creating and maintaining a B corporation vary by state.