Ever wonder about brands like Tillamook, Ben & Jerry’s, and Bombas? They’re not nonprofits, but they’re certainly making strides towards the betterment of our earth, whether activism through tasty frozen dessert, a climate action plan through dairy production, or by donating one of each pair of glasses sold to someone in need.
If you have a heart that’s equally passionate about business as it is about altruism, then the benefit corporation might be your next stop on your route to entrepreneurial success.
Understanding Benefit Corporation
A Benefit Corporation, or B Corp for short, is a unique for-profit company that’s all about making a positive difference in the world while still earning a profit.
Held to higher standards of accountability, transparency, and performance compared to traditional corporations, ensuring they’re always on the right track, B Corps are driven by a purpose statement that highlights their dedication to social and environmental performance.
They have strict requirements like sharing annual reports on their progress in these areas, keeping everyone in the loop, and adhering to legal scrutiny to ensure they’re living up to their promises.
More and more businesses are turning to the B Corp model to make a positive impact on society and the environment while making a profit.
What makes B Corps particularly unique is their cross-qualities of a nonprofit and a corporation. They do have their own 5 distinctions, which is what makes them the unique entity that business owners are striving to create.
Benefit corporations have a clear purpose; to create a positive impact on society and the environment. This goal, known as the public benefit purpose, must be stated in the corporation’s articles of incorporation and align with its business activities. It’s the guiding star for everything they do.
B Corps are held to higher standards than traditional companies and are required to report yearly on their social and environmental progress. Legal scrutiny keeps them in check, ensuring they meet their obligations. This extra layer of accountability builds trust among customers, employees, and investors alike.
Benefit corporations must be transparent about their social and environmental performance, making information about their performance available to the public and allowing shareholders to inspect their records.
This transparency also helps to build trust with customers, employees, and investors.
4. Right of Action
If a benefit corporation isn’t living up to its public benefit purpose, shareholders have the right to take legal action against them, which empowers them to hold the corporation responsible for its social and environmental performance.
5. Change of Control/Purpose/Structure
Benefit corporations can’t change their public benefit purpose or their B Corp status without the approval of a majority of shareholders, which ensures they stay committed to their social and environmental objectives and continue making a positive difference in the world.
Benefit Corporation vs Certified B Corporation
Both are for-profit companies with a focus on making a positive impact on society and the environment, so it’s easy to get the two a bit confused. But there is a key difference:
While benefit corporations have a legal designation to consider society and the environment in their operations, certified B corporations have earned the seal of approval from B Lab, an independent organization that verifies they’ve met the strict standards of the B Corp certification program.
So, certified B corporations have that extra stamp of credibility, showcasing their outstanding social and environmental performance, accountability, and transparency.
Benefit Corporation vs Traditional Corporation
We already know that benefit corporations are for-profit corporations that are legally required to consider the impact of their operations on society and the environment.
Traditional corporations, on the other hand, aren’t required to consider any social or environmental factors when making decisions for the betterment of the business.
B Corps are held to the standard specific to the 5 provisions mentioned above and are governed by a purpose statement that includes a commitment to social and environmental performance.
How Taxation Works for a Benefit Corporation
When it comes to taxes, benefit corporations are treated just like any other corporation, meaning they’re subject to federal, state, and local taxes on their income.
With all their involvement in social and environmental work, their contributions like donations to a charity or investments in renewable energy could potentially lower their taxable income.
The Internal Revenue Service (IRS) hasn’t released specific guidelines about taxing benefit corporations, so the tax requirements are currently the same as traditional corporations.
How to Apply for a Benefit Corporation
To become certified as a benefit corporation, you’ll first want to make sure you’re one of the states that allow for B Corp formation, as currently, only 35 states have passed legislation allowing it.
You could transfer your current business entity into a Benefit Corporation, or start one from scratch. If you’re transferring over, you’ll want to take and pass the B Impact Rating System, which scores your current operations, have a phone interview with B Lab, adopt the B Corp legal framework into your business, and sign a term sheet that shows you’re officially a B Corp.
If you’re starting your company from scratch, you’ll either need to identify the state you’re in has passed legislation on B Corps or find a registered agent in a viable state.
Once you’ve identified that the state you’re in is eligible, or have found a registered agent, you’ll walk through a similar process as you would establishing a traditional corporation, while paying close mind to word in the Articles of Organization that your corporation is working to provide for a general public benefit.
Be sure to also add a provision stating that your corporation can be held responsible if it fails to fulfill its public benefit purpose. It’s best to find support from a business formation specialist to ensure you’re following all the rules.
Advantages of a Benefit Corporation
- Increased Accountability: Benefit corporations are held to higher standards of accountability than traditional corporations. They report their social and environmental performance annually and face legal scrutiny if they go against their promises.
- Improved Reputation: Seen as more socially and environmentally responsible, benefit corporations enjoy increased sales, happier employees, and access to capital from socially-conscious investors.
- Greater Innovation: Benefit corporations aren’t just about maximizing profits; they invest in groundbreaking technologies and business models that positively impact society and the environment. They’re constantly driving new business approaches forward because they can blend profit and altruism.
- A Stronger Sense of Purpose: Benefit corporations give employees a sense of purpose and meaning in their work, which could lead to higher productivity, job satisfaction, and employee retention.
- A More Sustainable Future: By investing in renewable energy, reducing their environmental footprint, and advocating for the voiceless, benefit corporations are paving the way for a more sustainable future and more mindful business landscape for future entrepreneurs.
Disadvantages of a Benefit Corporation
- Increased Costs: Forming a benefit corporation can be pricier than a traditional corporation due to extra filing fees and costs tied to the legal structure.
- Increased Complexity: With higher accountability and transparency standards, managing a benefit corporation can be a bit more challenging compared to a traditional one. Plus, they’re pretty new, so states are still learning their way around monitoring and regulating them.
- Potential for Conflict: There’s always the chance that benefit corporations could face conflicts between their social/environmental missions and their responsibility to shareholders, especially if everyone doesn’t agree on the company’s goals.
- Limited Availability: Benefit corporations are not available in all states, yet.
Forming a Business Structure That’s Better for the World
Being passionate about what you do while also making a positive impact on the environment through your company can sometimes leave little room for anything else.
Don’t let your business finances fall behind and streamline your bookkeeping and accounting as a B Corp owner with doola’s bookkeeping services. Let us help you by managing the financial aspect of your company so you can focus on creating positive change.
Can a benefit corporation have a nonprofit organization?
A benefit corporation is a for-profit company with a stated public benefit purpose, and a nonprofit organization is a tax-exempt entity that is not organized for profit. It’s possible, though, for a business owner to own two separate entities: one a B Corp, and one a nonprofit.
Can a church be a benefit corporation?
No, a church is a religious organization, not a benefit corporation.
Are donations made to a public benefit corporation tax deductible?
Not at this time. Only donations made to a 501(c)(3) public charity are tax-deductible.