Want to Protect Your Social Mission? Become a Benefit Corporation.
The B Corp movement was created to address a variety of challenges many entrepreneurs face including raising capital, growing and selling a business without diluting the company's original social and environmental values.
Fortunately, through the leadership of B Lab (the nonprofit behind B Corporations) and the B Corp community, laws have been passed in 27 U.S. states to create a new type of corporation—the benefit corporation—that helps meets the needs of entrepreneurs and investors seeking to use business to solve social and environmental problems while supporting sound financial performance.
In particular, benefit corporations (which are different from Certified B Corporations) voluntarily agree to create a material positive impact on society and the environment; consider the impact of its decisions not only on shareholders but also on workers, community and the environment; and report on the public benefit(s) that the company has generated. On the other hand, Certified B Corporations (also referred to as a "B Corps") are companies that have been certified by B Lab to have met rigorous standards of social and environmental performance, accountability, and transparency. It's similar to LEED for green buildings or Fair Trade for coffee, except B Corp certification looks at the entire company--not just the product or service.
The legal protection provided by the benefit corporation is particularly relevant in succession planning. For example, many businesses, such as Ben & Jerry's, Burt's Bees, and Tom's of Maine, started out with leaders who wanted to create social, environmental, and financial value. However, if the original founders retire, the company wants to take on new investors in order to grow or the company is put up for sale, those strong core values could be diluted by the new CEO, investors or owners in favor of increased short-term profits. Structuring a company to be a benefit corporation can stop this from happening.
By incorporating as a benefit corporation, entrepreneurs can protect their mission by elevating their company's core social and environmental values to the status of law, meaning that a new CEO and/or new investors would be obligated to consider both shareholders and stakeholders when making decisions in the future. This helps ensure that such a company will continue to benefit society and the environment for the long term.
This is exactly what inspired Patagonia to join the B Corp movement. Yvon and Malinda Chouinard credit the benefit corporation legal structure with giving them the peace of mind that the environmental mission at the heart of the company's decades-long success would be safe after they retired.
"Patagonia is trying to build a company that could last one hundred years. Benefit corporation legislation creates the legal framework to enable mission-driven companies like Patagonia to stay mission-driven through succession, capital raises, and even changes in ownership, by institutionalizing the values, culture, processes, and high standards put in place by founding entrepreneurs" says Yvon Chouinard.
For those interested in incorporating as a benefit corporation, here are three questions to help you get started:
1. What is your current legal structure?
More specifically, is your company organized as a C corporation, S corporation, LLC, or sole proprietorship? This will help you and your attorney and/or accountant discuss the tax implications of becoming a benefit corporation.
2. In which state is your company organized?
There are currently 27 states that have passed benefit corporation legislation. However, the requirements of operating as a benefit corporation can differ between different states (more informatiuon about state-specific guidance is available here). Your legal advisor will be able to help you analyze the differences among the various state benefit corporation statutes.
3. Have you completed a due diligence review?
You should review the contracts your business has signed, in addition to the legal status of the affairs of your business (e.g. compliance with regulatory laws and the maintenance of your corporate and other records). This is to assure that changing your state of incorporation or form of organization will not have any unintended consequences.
As mentioned above, having competent legal counsel to guide you through this analysis will be very beneficial. Some useful guidance on these and other issues is available at Benefit Corp, a clearinghouse of information on benefit corporations maintained by the nonprofit B Lab.
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