Are Benefit Corporations and Certified B Corps the Same?

closeup of hands writingWhat is the difference between a benefit corporation and a Certified B Corp, a B Corp or a b corporation? Answering this deceptively simple question first requires understanding the nomenclature and some background about benefit corporations. Otherwise, the terms get conflated, causing confusion and misunderstanding.

I was co-chair of the legal working group behind California benefit corporation legislation. In adopting the legislation, we worked closely with B Lab, a Pennsylvania not-for-profit (see:www.bcorporation.net), which was one of three non profit organizations that sponsored the legislation. B Lab is the leader in the national movement to adopt benefit corporation legislation.

Confusion often arises because businesses that get certified as Certified B Corps using B Lab’s Certified B Corp certification standard, which evaluates businesses with respect to their social and environmental performance, are affectionately called “B Corps” or “b corporations”. B Lab will certify a business that achieves a score of 80 or higher on the assessment as a Certified B Corp for a small annual fee. Companies can also use the B Lab assessment tool to self-assess for free. B Lab has certified more than 500 businesses as Certified B Corps, and about 3000 others have assessed themselves online for free.

Unfortunately, the lay terms “Certified B Corp”, “B Corp” and “b corporation” are so similar to the legal term “benefit corporation” that they are often used interchangeably by mistake. The legal term “benefit corporation” designates a new type of corporation authorized by statute. Currently 7 states, CA, NY, VA, NJ, MD, VT and HI, have adopted benefit corporation legislation that authorizes the creation of benefit corporations, and benefit corporation legislation is pending in at least 5 other states. (see www.benefitcorp.net)

The benefit corporation laws vary from state to state but in general, a benefit corporation is a regular, for profit corporation that is subject to three additional requirements to have (i) a public purpose, (ii) transparency to shareholders and (iii) accountability to shareholders.

Public Purpose. California benefit corporations, for example, have a general public purpose whereby their operations, taken as a whole, must provide a material positive impact on society and the environment. In addition to providing a general public purpose, benefit corporations can also pursue a particular public purpose, such as protecting the environment.

Transparency. Benefit corporations provide transparency to shareholders by assessing their provision of a public benefit against an independent third party standard or by being certified or audited by a third party standards body using an independent third party standard. The results of this assessment must be reported at least annually to shareholders.

Accountability. Benefit corporations provide accountability to shareholders by enabling shareholders to sue to compel the corporation to provide a public benefit if it fails to do so without allowing shareholders to sue for monetary damages.

During the California legislative process, the lay terms associated with Certified B Corps were often conflated with the term “benefit corporation” causing frequent confusion. The confusion over terminology can be compounded because any type of business, including partnerships, limited liability companies and corporations can be certified as a Certified B Corp. My law firm, for example, is a Certified B Corp even though we are a California limited liability partnership.

There is also a common misperception that benefit corporations must be certified by B Lab, or that the Certified B Corp standard is the third party standard required by statute. There are many other qualified similar third-party assessments that measure social and environmental performance: Global Reporting Initiative (www.globalreporting.org); Green Seal (www.greenseal.org); People4Earth Business Framework www.people4earth.org); Food Alliance (www.foodalliance.org); ISO 26000 (www.iso.org/iso/social_responsibility); UL Environment – ULE 880 (www.ulenvironment.com).

 

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