B Corps — How Companies Like Patagonia Are Disrupting the Corporate Landscape
What is a B Corp?
Certified Benefit Corporations (“B Corporations” and/or “B Corps”) balance purpose and profit. B Corporation certification requires that companies meet social sustainability and environmental performance standards and provide for public transparency. Patagonia, Ben & Jerry’s, New Belgium, Kickstarter, and Seventh Generation are among the largest and most well-known B-Corporations.
Not to be confused with benefit corporations, B Corporations are certified by B Lab, a non-profit dedicated to holding businesses accountable for their social and environmental impacts. B Corporations are revolutionizing the traditional “for-profit” corporate model by holding themselves to a higher standard than simply maximizing profits. With years of experience forming B Corporations and other types of entities, GLO works with businesses interested in becoming B Corporations and assists them throughout the certification process.
What does a B Corp certification mean?
B Corporations are legally required to consider the impacts of their decisions on their workers, customers, suppliers, community, and the environment. A B Corp certification is a third-party certification administered by the non-profit B Lab, based in part on a company's verified performance on the B Impact Assessment (BIA). In contrast, a benefit corporation is a similar concept except a benefit corporation is a business form that is formed by filing with the Secretary of State and is thus subject to the state’s corporate laws. Although, filing as a benefit corporation is a requirement for becoming B Corp certified.
A B Corp certification measures a company’s entire social and environmental performance. The B Impact Assessment evaluates how a company operates and how its business model impacts others. From the supply chain and input materials to charitable giving and employee benefits, a B Corp certification proves that a business is meeting the highest standards.
Why would a company become a B Corp?
The corporate landscape is evolving. Businesses want to be held accountable and to contribute positively to social and environmental issues. This blossoming business philosophy and ethos acknowledges that while capitalism’s improvements to society have come at a collateral cost both to the environment by ways of mass pollution and to society by way of tremendous wealth disparity, capitalism is nevertheless the best vehicle to solve those issues as well. B Corp certifications allow businesses a way to be held socially and environmentally accountable, to measure their progress, and to carry out their non-financial values.
To that end, B Lab’s goal, and the goal of its many certified B Corporations, is to create an economy where capital and enterprise benefit society as a whole, rather than just shareholders.
How is a B Corp different from a traditional corporation or an LLC?
B Corporations are legally required to consider the impact of their decisions on all their stakeholders, while LLCs are only obligated to consider shareholder profits.
B Corporations make this change by updating their articles of incorporation, reincorporating as benefit corporations, and making other structural changes. The B Corp legal framework helps companies protect the B Corp mission through raising capital, changing leadership (by holding the officers and directors liable), and giving entrepreneurs and directors more flexibility when evaluating potential sale and liquidity options. The company’s governing documents must provide that:
(1) Directors and officers can consider the interests of all stakeholders (e.g., the company’s employees, the community, etc.) and not just shareholders when making decisions
(2) Shareholders must have certain rights to hold directors and officers accountable for considering these interests.
To become certified, companies sign a B Corp Agreement, committing themselves to meet these legal requirements. Since changing corporate structure or articles takes time, however, B Lab allows a grace period for companies to complete the legal requirement after Certification is complete, the length of which varies depending on structure and location.
How is a B Corp different from an LLC?
Unlike LLCs who are only obligated to consider shareholder profits, Certified B Corporations are legally required to consider the impact of their decisions on all their stakeholders. B Corporations make this change by updating their articles of incorporation, reincorporating as benefit companies, and making other structural changes. The B Corp legal framework helps companies protect the B Corp mission through capital raises and leadership changes and give entrepreneurs and directors more flexibility when evaluating potential sale and liquidity options. Specifically, the legal requirement: (1) gives legal protection to directors and officers to consider the interests of all stakeholders, not just shareholders, when making decisions; (2) Creates additional rights for shareholders to hold directors and officers accountable to consider these interests; and, (3) Limits these expanded rights to shareholders exclusively.
How much does a B Corp certification cost?
B Corporations pay an annual fee, which is calculated according to the region and the company’s annual revenue. Fees range anywhere from $1,000 for a US or Canadian business with under $100,000 in annual sales and $50,000 for one with $750,000 in annual sales.
How do I certify my business as a B Corp?
To become a certified B Corporation, a business must complete the B Impact Assessment (BIA). The BIA is a free online evaluation of how a company interacts with its workers, customers, community, and environment. After completion of the BIA, the B lab determines if the company’s score meets the threshold for certification. The BIA measures a company’s performance over the past twelve months, and the assessment includes around 200 questions depending on the company’s size, sector, and market.
While the B Corp Certification is primarily based on assessing a business's positive impact, material negative impacts are also considered through the Disclosure Questionnaire. B Lab also performs background checks, and after certification, B Corporations remain subject to a public complaint process.
B lab will then meet with the company virtually to review the BIA and to validate a company’s responses to the questions. To maintain certification, B Corporations must update their BIA and verify updated scores every three years. B Corporations must also pay an annual fee, which varies by region and the business’s annual sales. B Corporations must implement social and environmental practices and policies that minimize impacts and make positive contributions.
Each year, 10 percent of Certified B Corporations are randomly selected for an in-depth Site Review. Site Reviews take place virtually or on-site at the discretion of the B Lab team. Certified B Corporations that are wholly owned subsidiaries or public companies are subject to a mandatory on-site Review during each three-year Certification term. All Certified B Corporations must share its B Impact Report publicly on bcorporation.net. The B Impact Report is the summary of a company’s scores on the B Impact Assessment by category and contains no question-level information.
Is my company eligible for B Corporation certification?
Companies that have at least year one of operations are eligible for certification. However, companies operating for less than a year are eligible for Pending B Corporation status. Almost any legal entity is eligible, including LLCs, traditional corporations, and benefit corporations and cooperatives.
If you have any questions about B Corporations and whether a B Corp certification is right for your business, fill out an interest form today to see if GLO can help you.
GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific fee arrangements and signed engagement letters. GLO does not guarantee any results.
