Giving Compass' Take:
- Jennifer Kongs and Abigail Barnes explain the differences between B Corps and benefit corporations: the former is certified by B Lab and the latter is a legal designation.
- How can impact investors use this information to guide their investments?
- Read an investor's guide to B Corps and benefit corporations.
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According to the nonprofit B Lab, the benefit corporation is “a new legal tool to create long-term mission alignment and value creation,” which is then protected during “capital raises and leadership changes, [and] creates more flexibility when evaluating potential sale and liquidity options.”
For companies to incorporate as a benefit corporation, the state must first pass a law allowing this new corporate form. So far, 34 states, the District of Columbia and Puerto Rico have passed benefit corporation legislation, meaning several states have yet to adopt this better business structure.
There’s very little difference between a benefit corporation and a C Corp. Tax law treats them equally. The main difference is that a benefit corporation builds language into its articles of incorporation and bylaws requiring that its corporate directors and officers consider all stakeholder interests in corporate decision-making, while creating a material positive impact on society and the environment. Many businesses do this anyway, so this is really just a way of formalizing a company’s commitment to higher standards of corporate governance.
In addition to the recent surge in benefit corporations, an increasing number of businesses are becoming Certified B Corporations — or “B Corps,” as they’re often referred. The same principles inform both certification and incorporation: to place stakeholder interests on equal footing in corporate decision-making. B Corps are for-profit companies that have passed B Lab’s B Impact Assessment. You can think of the assessment as a social and environmental report card. If the company achieves above a certain score, it may become certified. To remain certified, a company must pursue benefit corporation legal status (or its equivalent, if unavailable).
Read the full article about B Corps and Benefit Corporations by Jennifer Kongs and Abigail Barnes at Medium.