Benefit Corporation vs. B Corp

B Corp Definition

A Certified B Corporation (a.k.a. B Corporation, Certified B Corp, or B Corp) is a for-profit legal entity that has obtained certification from the nonprofit B Lab. B Corp Certification is a designation that a business is meeting high standards of verified performance, accountability, and transparency on factors from employee benefits and charitable giving to supply chain practices and sustainability. This new type of corporation—the B Corp—is purpose-driven and creates “benefit for all” stakeholders, not just shareholders. 

Standard value propositions of B Corps include the following:

• Retention of talent
• Attraction to investors
• Connection to like-minded peers
• Accountability to mission and purpose
• Impact improvement

>> What’s behind the B in B Corp? Learn how B Corps are a better kind of business.

How B Corps Began

B Lab, the nonprofit network behind the B Corp movement, was founded in the U.S. in 2006 by three college friends — Jay Coen Gilbert, Bart Houlahan, and Andrew Kassoy — who believed that a different kind of economy was not only possible but necessary, and that business could lead the way toward a new stakeholder-driven model. They formed B Lab to improve business for workers, communities, and the planet. 

The B Corp movement began when they created B Corp Certification. Think of this as a comprehensive business certification akin to organic for milk or fair trade for coffee. It evaluates every area of a company’s operations and impact, from how it treats its workers to its supply chain, its impact on the local community, the broader society, the environment, and its governance.

To get B Corp Certification, all B Corps must:

• Demonstrate a high social impact and environmental performance through the B Impact Assessment with a score of at least 80 points.
• Be transparent and have a public profile on B Lab Global’s website, BCorporation.net, with information about their B Impact Assessment scores.
• Sign the Declaration of Interdependence.
• Make a legal commitment to stakeholder governance—considering all stakeholders in their decision-making, not just shareholders or investors.
• Have a purpose to impact society and the environment positively.

Benefit Corporation Definition 

A benefit corporation is a legal status administered by your Secretary of State or similar role in each state, province, or country. This status is a layer on top of the traditional corporate status. Any corporation can become a benefit corporation by amending its corporate formation documents and inserting specific language that they are a benefit corporation. Becoming a benefit corporation is one way to achieve the legal requirement for stakeholder governance for B Corp Certification.

*It’s important to note that benefit corporations and public benefit corporations are essentially the same. In most states, they’re called benefit corporations, but others, like Delaware, use the term public benefit corporation. In some states, like New York and California, the term public benefit corporation actually describes different entities, such as nonprofits. This is a major reason for the confusion around these terms.

All benefit corporations have higher obligations than a traditional corporation to three core tenants: purpose, accountability, and transparency. These three tenets differ slightly depending on what state you’re in. There are two main versions: the model legislation and the Delaware benefit corporation legislation. 

In the model legislation:

• The purpose of a benefit corporation is to create a material positive impact on society and the environment, or what’s called a general public benefit purpose — a boiled-down mission statement. 
• The accountability obligations are that the directors must consider the impact of their decisions on all of their stakeholders, not just shareholders. The benefit corporation statute then enumerates many stakeholders (i.e., workers, suppliers, the environment).
• The transparency obligations are that you must report publicly and to your shareholders about how you achieved your general public benefit purpose and how you considered your stakeholders over the last year.
  • You must use a third-party standard to create the annual benefit report. The choice of the third-party standard is left up to the company; it just has to be credible, transparent, independent, and comprehensive. 
  • You do not have to be certified or audited by the third-party standard.

In the Delaware benefit corporation legislation: 

• The purpose of a Delaware benefit corporation is to operate responsibly and sustainably. You must have a specific public benefit purpose that would be added to your articles, charter, or governing documents.
• The accountability obligations are that the directors must balance their decisions’ impact on their shareholders, material stakeholders, and the specific public benefit purpose they wrote into their articles of incorporation. 
• The transparency obligations are that they are only required to report every two years to their shareholders. They do not have to use a third-party standard, but they can. 

The big differences between a model benefit corporation and a Delaware benefit corporation are primarily in the transparency requirements, in which the Delaware benefit corporation has less.

How Benefit Corporations Began

When B Lab’s founders created B Corp Certification, they saw traditional corporate law governance as giant roadblocks for corporations looking to commit to stakeholders and mission. B Lab created the benefit corporation status to combat this, first passed into law in Maryland in 2010. 

Traditional corporate law dictates that the one fiduciary duty of a corporation’s director is to maximize shareholder value. Any other stakeholder or consideration you want to factor into your decision-making can be pushed aside. This is what’s called shareholder primacy. Shareholder primacy dictates that value creation for shareholders has control over every further consideration for a corporation.

The founders of B Lab saw this as a significant problem for mission-driven entrepreneurs and the economic system as a whole. That’s why one of the requirements for benefit corporations and B Corps is to opt out of shareholder primacy, remove your company from that value-creation-above-all-else mindset, and move into something called stakeholder governance. 

Under stakeholder governance:

• Companies are still required to consider the impact of their decisions on their shareholders, but now also on their other stakeholders.
• Companies are no longer required to hold shareholders above everyone else. 
• Companies can make trade-offs between shareholders and their other stakeholders, like their workers, communities, and the environment. Companies could theoretically decide to prioritize these other stakeholders over their shareholders, even if that decision will hurt them. 

Shareholder primacy is still the dominant doctrine controlling companies in the U.S. and worldwide. B Lab realized it needed a pathway to allow entrepreneurs to opt out of shareholder primacy and into stakeholder governance. That’s why the founders and B Lab staff created the benefit corporation statute, and they, and many others, have worked to pass that into law in jurisdictions across the U.S. and abroad.

The Difference Between a Benefit Corporation and a B Corp 

B Corps have a higher bar set for them than benefit corporations. Benefit corporations don’t have a set performance standard like B Corps. B Corps have an outside entity — B Lab — holding companies accountable for performance.

Benefit corporations are a layer added to a traditional corporate entity type. On the other hand, B Corps can be several different for-profit legal entities (i.e., cooperatives, limited liability companies, professional corporations, corporations, limited liability partnerships). Neither can be nonprofit organizations.

B Corps and benefit corporations do have several similarities, such as: 

• Classification as a for-profit company
• Opting out of shareholder primacy and into stakeholder governance
• A legal purpose that’s built into their legal DNA
• Transparency in terms of performance, although benefit corporations have no performance bar and self-report their performance
• Huge potential to transform the global economy to benefit all people, communities, and the planet 

Becoming a benefit corporation is a significant first step, but B Corp Certification is the next step up. Remember: plenty more work must be done once your business is certified as a B Corp. You will want to monitor your company’s performance regularly, and you’ll need to recertify every three years. B Corp standards always evolve, so be ready for new requirements.

How to Become Certified

The B Corp Certification Process

All companies need to meet three components to become a B Corp.

1. Social Responsibility and Environmental Impact Assessment

The B Impact Assessment is the first step to B Corp Certification. It’s a free, comprehensive online tool that takes companies through a series of questions that can help measure, manage, and improve positive impact performance for the environment, communities, customers, suppliers, employees, and shareholders. Companies must score at least 80 points to pass the assessment. However, it’s recommended you submit your assessment with a score of at least 85, as it is very common for scores to fluctuate throughout the review process. 

2. Legal Framework

All B Corps have to make a legal commitment to all stakeholders, but they make it in a way that makes sense for their jurisdiction and legal structure. For example, Limited Liability Companies are governed by contract law in the U.S. They can commit to stakeholders within their existing operating agreement without opting out of shareholder primacy. For cooperatives, this is also the route to go. 

But S Corps or C Corps must first register as a benefit corporation. B Corps that are corporations and reside in states with benefit corporations must be benefit corporations first to opt out of that shareholder primacy. 

3. Meet Transparency Requirements

Companies must make a public B Corp profile and publish their B Impact Report in the B Corp Directory on B Lab Global’s website. Some companies may be required to meet additional transparency requirements based on structural complexity or risk identified throughout the review process. This will be done as a final step right before certification.

>> We make the process easy with our Guide to B Corp Certification. We outline everything you need to know, from who can certify to process, requirements, and membership fees. 

Becoming a Benefit Corporation

If you’re interested in becoming a benefit corporation, it’s a relatively simple process depending on what state or province you reside in (currently, benefit corporation status in Canada is only available in British Columbia) and how complicated your capital structure is. Becoming a benefit corporation is an amendment to your articles of incorporation. 

B Lab U.S. & Canada certifies companies leading the way, but we’re not lawyers. Read up on additional requirements for your state to become a benefit corporation and consult a lawyer if necessary.

The process looks like this:

• You insert a specific statement that this corporation is a benefit corporation.
  • If you’re in Delaware or similar states, you also insert your specific public benefit purpose into your articles of incorporation. 
• You approve that amendment with the minimum status vote of your shareholders.
  • The minimum status vote is either a majority or two-thirds, depending on the state or province. What can complicate matters is that, in a few states, there’s something called dissenters’ rights, which means if a shareholder votes no, doesn’t vote, or abstains, they’re entitled to the fair market value of their shares.
    • This can be daunting for a private company with several investors. But it’s a relatively easy process for a company with a few shareholders, with shareholders aligned with the decision, or where dissenters’ rights don’t apply.
• You file that amendment with the Secretary of State or a similar role in your region.
• Now, you’re a benefit corporation!

Other Resources

We offer resources that explain the ins and outs of B Corps vs. benefit corporations and how B Lab is here to support your needs wherever you are in your impact journey.

• B Lab YouTube Channel

• Certifying Companies with Complex Structures

• Why Certify? 

• B Corp Directory

• B Lab FAQ