How to Form a Benefit Corporation
Benefit corporation is set up the same as a C corporation in most areas, but there are some specific considerations the corporation must follow.
A benefit corporation, which is also sometimes referred to as a public-benefit corporation (PBC), is a for-profit corporate entity that has a positive impact on society, workers, the community, or the environment. The directors of the company must consider and state the impact of their decisions on these areas.
In existence since 2010, 35 states and the District of Columbia allow benefit corporation formation. It is set up the same as a C corporation in most areas.
Top considerations that a Benefit Corporation has to follow
There are some specific considerations that a Benefit Corporation must follow:
When stating the purpose of the corporation’s mission and bylaws, the owners and directors must specifically name a public benefit as its main objective. The objective must be in the best interests of the corporation as well.
The directors must make decisions that are in the best interests of the corporation and consider the effects of those decisions on all employees, suppliers, customers, community, and the environment.
Reporting requirements involve delivering an annual benefit report to shareholders and shared with the public. This will state the benefit objectives and how the corporation is achieving them. This impact is measured against standards set forth by B Lab, an independent non-profit organization.
Right of Action
Shareholders and directors have the right of action, which means there is a standard of conduct management must follow and a failure to pursue general or specific public benefit is a violation.
Change of Control/Purpose/Structure
If the benefit corporation wants to change owners, directors, bylaws or purpose, a status vote with a 2/3 majority is required in most states.
Advantages of a Benefit Corporation
A C Corporation or a Non-Profit may choose to change its organizational structure to a benefit Corporation to illustrate its commitment to social sustainability. A company might also choose to incorporate from the beginning as a benefit corporation. Here are some compelling reasons:
To Attract Investors
It is important to have investors who are aligned with your goals. Benefit corporations spend time thinking about their decisions and the impact on society and this often results in a well thought out business plan that attracts investors.
To Raise Capital
If your company has a good business plan and is set up well for long-term growth, venture firms find benefit corporations an attractive investment. Benefit corporations need to set a specific direction and this planning and forethought makes for an attractive portfolio.
To Attract Talent
Benefit corporations attract employees that want to change the world, and this is especially true with younger workers. Being able to make a living as well as affecting the greater good will encourage top candidates to want to be part of your team. After they join your team, they want to make a difference, and this makes for a great employee base.
Part of the mission of benefit corporations is a positive impact toward employees. This will set clear expectations and goals for employee involvement and create loyal workforce.
Customer Trust and Loyalty
Customers like supporting businesses that make an impact, and when they find one that aligns with their values and does good in the world, they tend to keep coming back. They feel like they are making a difference by supporting your business.
Aligning with Like-minded Businesses
Benefit Corporations tend to seek out other benefit corporations for supplies, services, and sales. They support the same mission and often work well together.
Misconceptions of Benefit Corporations
When one hears about a benefit corporation, they tend to confuse them with non-profits. A benefit corporation’s goal is definitely to make money, but to balance this with a bigger mission.
A few examples of well-known benefit corporations include Patagonia and King Arthur Flour.
Patagonia makes clothing for outdoor activities and works to protect public lands. King Arthur Flour makes baking goods, and is committed to sustainable practices, diversity, and inclusion. Which brings us to another misconception that benefit corporations are small operations. These two worldwide brands show that large successful companies can be profitable and also make an impact.
Benefit corporations can be privately owned or publicly traded. While the first IPO for a benefit corporation was in 2017, investors are starting to recognize the value of this more impactful way of thinking. The added requirements in abiding by a mission are often a bonus in building a reputable company.
All other financial and tax requirements are the same as a C corporation. Another misconception is that benefit corporations must be certified and audited. While a Certified B Corporation must fulfill all of the requirements of a benefit corporation, a certification is purely optional.
Certified B Corporation
A benefit corporation may wish to become certified to show their deep commitment to using their business for good. It is not a requirement for doing business, but many corporations pursue it to lend more credibility to their cause. A benefit corporation is a legal status in the United States while Certified B Corporation is a branding tool and available to any business regardless of corporation structure, state, or country of incorporation.
A Certified B Corporation must meet the requirements of a benefit corporation, plus stringent assessments, and yearly fees. The same organization that sets widely accepted standards for benefit corporations is responsible for certification. The corporation submits an application to B Lab. This non-profit, third-party organization will evaluate and perform an assessment based a set of criteria that measures positive impacts in the areas of governance, workers, community, and the environment.
While a benefit corporation is an entity in over half of the states, a Certified B Corporation is an international designation. With fees ranging from $500 to $50,000/year (based on company revenues) and the B Impact Assessment, a logo and certification will appear on your documents or website. A recertification by B Lab is required every 3 years as standards can change.
Benefit Corporation Vs. Nonprofit organization
Public benefit corporation (PBC) can pursue a public benefit purposes and at the same time go after profit-generating activities. This is the key difference between those two entities as a Nonprofit organization cannot go after profit generating activities.
How to become a Benefit Corporation
Check and see if your state allows this type of structure – about one-third of them do not recognize this yet. It is an option to incorporate in a state that is not your residence (such as Delaware). Become clear about your purpose and mission. Consider the impact to your marketing goals as well. As discussed, there are clear advantages to going the extra step to becoming a benefit corporation. It is worth seeing if its right for you.