Social Entrepreneur Guide

What you need to know if you want to create a for-profit socially beneficial company.  
 

 

WHAT OPTIONS ARE AVAILABLE AND WHICH ONE IS BEST FOR MY BUSINESS?

If you want to hold your company out to the public as having a social purpose and verify that it meets standards of accountability, but remain a for profit entity, you have two options: 

  • Benefit Corporation
  • B-Corp   

While they sound similar and both denote companies who value social benefit, they are actually quite different and each will carry different implications for your business.
 

WHAT IS A BENEFIT CORP?

A “Benefit Corp” is a for-profit corporate entity currently available under the laws of 33 different states and D.C. Registering your business as a Benefit Corporation will show the public, including investors, that your company is legally committed to its social mission and ensure that mission will be respected by any future owners. Examples of famous Benefit Corporations include: Kickstarter, Patagonia, Klean Kanteen, Method (at Target).

 

Benefit Corp Overview:

  • Type of for-profit corporation.    
  • Legal status preserves your social mission by protecting:
    • Right to consider non-financial interest in decision making.
    • Investors’ right to hold your company accountable to its mission.  
  • Requirements:
    • Public purpose
      • Must have the purpose of “general public benefit.”
        • Must create a “material positive impact on society and the environment” as assessed by a 3rd-party standard.
    • Accountability
      • Directors/Officers must consider non-financial interests of:
        • Shareholders
        • Workers (including employees, subsidiaries, and suppliers)
        • Customers (relevant to its mission)
        • Community and Society
        • Local and Global Environment
    • Transparency    
      • Must publish annual reports assessed by 3rd-party standards.    


Note: Reporting is required by law; requirements vary by state; reports can be used in litigation brought by investors for not upholding your social mission, and legal business status can be revoked for failure to report.

 

WHAT IS A B-CORP?

A “B-Corp” is a certification available to any for-profit company that voluntarily meets certain social impact standards. Certification is granted by the nonprofit B Lab. To be eligible for B-Corp certification, a company must pass an assessment by meeting a minimum score in a variety of social and environmental areas. There are more than 2,100 B-Corps across 50 countries in over 150 industries. B-Corps are part of a global conscious commercial society.
 

B-Corps Overview:

  • Any for-profit company certified by the nonprofit B Lab  
  • Voluntarily meets set standards of:
    • Transparency
      • Bi-annually B Impact Assessment Report.
    • Accountability
      • Directors/Officers are required to consider all stakeholders.   
        • (same as Benefit Corp).  
    • Performance
      • Must meet minimum score set by B Lab.
        • Standards for recertification continually evolve.


NOTE: B Impact Reports can also be used by Benefit Corps to fulfill their annual public 3rd-party performance reports.

 

WHAT ARE THE DIFFERENCES? 

BENEFIT CORP

Legal Entity & Commitment: Your business’s social mission is protected by state law. Upholding your mission is also legally required by law. You can be sued for not upholding your mission.

Flexible Standards: You can decide what kind of “material” positive impact your corporation will focus on. It can be either society or the environment, or both. There are no minimum impact performance requirements.

B-CORP

Just a Certificate: Your business's social mission is documented by a certificate that shows the public that your business has met minimum standards of social and environmental performance, accountability, and transparency.  However, your social mission is not necessarily protected by law.

Set Standards: High minimum standards across multiple social and environmental areas may give your business less flexibility to focus on a specific mission.     

Both have public reporting requirements.

 

HOW DO I FORM A BENEFIT CORP?

In California, you can form a new benefit corp or convert your existing entity into a benefit corp by filing the appropriate articles with the California Secretary of State. 
 

HOW DO I REGISTER A B-CORP?

To obtain a B-Corp certification, you must submit the B-Corp assessment test  which assesses the overall impact of your company on its stakeholders. If your score is up to snuff you can complete the appropriate documentation to obtain your certificate. If you are not approved you can take measures to amend your operations to meet the B-Corp standards. 

 

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This article is for informational purposes only and is not legal advice.