Benefit Corporations and Certified B Corps: A Case of Tomato v. To-mah-toe?

Are Benefit Corporations and Certified B Corps simply a case of tomato versus to-mah-toe?

Not quite.

As their names suggest, Benefit Corporations and Certified B Corps do have much in common. They are linked by the idea of running a company using socially and environmentally driven business practices. In fact, it appears this key similarity has led to the interchangeable, and incorrect, use of the terms by some parties when describing socially conscious businesses.

Benefit Corporations and Certified B Corps share other similarities as well. Directors of both must consider the effects business decisions may have on parties other than shareholders-parties such as employees, the local community, and even Mother Nature. In addition, the social and environmental goals of each must be assessed against a neutral, third party standard. This assessment is then published in a public report for all to see. B Lab, a non-profit organization, is also connected to both types of entities. B Lab is a non-profit that certifies and supports Certified B Corps and helps provide access to the network of other Certified B Corps for support and other services. In addition, B Lab helped develop the model benefit corporation statute that many states have used in drafting their own benefit corporations laws.

However, despite these similarities, and incorrect interchangeable use, the differences between Benefit Corporations and Certified B Crops are significant, and could carry many implications.

One of the key differences is that a Benefit Corporation carries a legal status bestowed by the state. This means Benefit Corporations are subject to the specific provisions of the statute creating their existence. Certified B Corps do not necessarily have this recognition (unless of course a business is a Benefit Corporation AND a Certified B Corp). Instead, certification is granted to a business operating as a different type of business entity, such as a regular business corporation, limited liability company, or partnership. Think of it as a third party seal of approval.

This difference in status may create implications for a Certified B Corp in its pursuit of its social goals. While directors are protected under the benefit corporation statute for decisions made in furtherance of a general public benefit (or a specific public benefit for that matter), Certified B Corps not formed as a benefit corporation do not necessarily have the same protection. In other words, Certified B Corps are still subject to the established practice of emphasizing shareholder returns over all else. Should stakeholders in a Certified B Corp begin to value profits over certification and social aims, both the directors’ and the company’s mission may be at risk.

On the flip side, Certified B Corps are given opportunities due to their certification status that non-certified Benefit Corporations do not have. To obtain certification, companies must score 80 out of 200 points on B Lab’s Impact Assessment. Once granted, certification offers certified companies access to a range of services and support from both B Lab and other certified businesses. These services not only provide access to the network of other Certified B Corps, but also help with raising money, marketing, and business growth. Legal status alone does not grant a Benefit Corporation access to these types of benefits.

Clearly, Benefit Corporations and Certified B Corps should not be mistaken for one another. Each offers distinct benefits and disadvantages, but mistaking one for the other could carry future implications. Any business looking at legal recognition and/or certification should be sure to understand the differences between the two before making any decisions on which path to follow.

Yet, businesses truly committed to making the world a better place though social and environmental good may want to consider both. Legal recognition would help ensure the company stays true to its social mission and third party certification would provide access to a series of benefits supplied by the network of certified businesses. Combined, both may show consumers that the business is committed to furthering its mission and provide a competitive edge in a market where such consumers are becoming more conscious of their purchasing power.

About Sarah M. Studzinski

Sarah M. Studzinski is an associate at Bose McKinney & Evans LLP. She concentrates her practice in the Business Services, Tax and Real Estate Groups. Prior to joining Bose McKinney & Evans, Sarah was a research assistant for Professor Mark Janis at the Indiana University Maurer School of Law. Sarah earned her bachelor’s degree in theatre and communications, with highest honors, from Purdue University. She earned her J.D. from the Indiana University Maurer School of Law – Bloomington, where she graduated magna cum laude. She is licensed to practice in Indiana.
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