What is a Benefit Corporation?

Spend enough time in the social impact space, and you’re bound to hear the concept of “B-Corps” come up again and again. But what exactly is a Benefit Corporation, and why is the concept so important to the conversation around business as a force for good?

Some Background

Broadly speaking, businesses traditionally fell into one of two categories: they were either for-profit or nonprofit. For-profit companies were driven to maximize financial returns, while nonprofits relied on outside fundraising and donations to operate. With no social impact requirements for for-profits, and no ability for nonprofits to use the power of the market, the two camps remained firmly planted on opposite ends of the spectrum.

Meanwhile, a historic global culture shift was already underway to harness the power of business to help address society’s greatest challenges. People were realizing that the business community could be part of the solution to global problems like wealth inequality, climate change, and social unrest. 

Against this backdrop, in 2006, three friends set out to explore a third option – almost a hybrid of the two, that would allow businesses to use the power of the market as a force for social and environmental good. They founded a nonprofit called B-Lab with the goal of accelerating that cultural shift to bring about an inclusive, equitable and regenerative economic system for all people and the planet. 

The advocacy work done by B-Lab and its partners helped bring a new legal entity into existence: the Benefit Corporation. 

The Benefit Corporation As a Concept

In the MovingWorlds Institute, we educate Fellows that a social enterprise is often a B Corp (not all social enterprises are B Corps, and in almost all cases, all B Corps are social enterprises). Specifically, B Corps have targets in five categories of responsible operating practices: Governance, workers, community, environment, and customers.

In setting targets and showing progress in these five areas, benefit corporations grow to create social good, manage their externalities, contribute to their communities, care for the planet, and ensure they are treating workers equitably.

The Benefit Corporation as a Legal Entity

A benefit corporation, sometimes called a “B Corp,” is a for-profit corporation that commits to create a material positive impact on society and the environment from the business and operations of the corporation. As CooleyGo explains, “Like a traditional corporation, it pursues profit for the benefit of its shareholders, but a benefit corporation must also report on how it pursues a positive social environmental impact.” The table below outlines some of the other key differences between Benefit Corporations and traditional corporations:

Another advantage of the benefit corporation structure is that it gives entrepreneurs the freedom to define success beyond profit for their businesses, and protect their mission through changes in ownership and leadership by baking it right into their articles of incorporation. 

Is the option to incorporate as a Benefit Corporation available everywhere?

The short answer is: no. However, that is changing. In the United States, some version of the Benefit Corporation has been adopted in over 30 states plus the District of Columbia, but the actual name of these entities varies by state. In Washington State, for example, Benefit Corporations are called “Social Purpose Corporations.”

Similar legal structures are gaining momentum internationally as well. The United Kingdom offers an option called a “Community Interest Company,” with similar features to ensure it’s operating for the benefit of the community. Social Enterprise UK is an example of a Community Interest Company working to further the social enterprise movement.

Bringing this kind of legal structure or its equivalent to more parts of the world is a big part of B-Lab’s ongoing work. As its website explains, “B Lab works with our partners around the world to identify countries where corporate law impedes mission driven entrepreneurs. B Lab works with local experts to identify legal pathways for mission-aligned companies to consider impact over time. A key component of B Lab’s impact thesis is that accountability is fundamental to driving positive impact over the long-term. Companies can only consider impact over time if they are legally allowed (and even required) to do so. Building on the success of benefit corporation legislation in the U.S., B Lab is already working with governments in several countries to create and implement mission-aligned structures and working in all its regions to promote their use.”

In Latin America, for example, Sistema B promotes B Corps and other economic actors in Latin America in order to build a new economy, in which success and financial benefits include social and environmental well-being. Organizations with the same goal of furthering business as a force for good include Social Traders in Australia and Euclid in Europe.

Legislation is already moving forward in Australia, Argentina, Chile, and Canada. For information on these legislative efforts, you can contact holly@bcorporation.net.

What’s the difference between a Benefit Corporation and a “Certified B-Corp”?

The B-Lab certification is similar to other certifications, like “Fair Trade” or “USDA Organic.” Most certified B-Corps will have this icon somewhere on their website: 

Any organization that is incorporated as a benefit corporation is a B-Corp. But for organizations in places where those legal structures aren’t available, or even organizations who are incorporated as a B-Corp but want an extra layer of accountability, Certification is a third-party service administered by the non-profit B Lab, based in part on a company’s verified performance on the B Impact Assessment. 

The B Impact Assessment is a free, confidential tool that any business can use to start measuring and managing its social and environmental impact. Dimensions covered in the assessment include:

• Governance
  • Mission & Engagement
  • Ethics & Transparency
  • Mission Locked Impact Business Model
• Workers
  • Financial Security
  • Health, Wellness, & Safety
  • Career Development
  • Engagement & Satisfaction
• Community
  • Diversity, Equity, & Inclusion
  • Economic Impact
  • Civic Engagement & Giving
• Environment
  • Environmental Management
  • Air & Climate
  • Water
  • Land & Life
  • Environmental Education & Information Impact Business Model
• Customers
  • Customer Stewardship
  • Education Impact Business Model
  • Economic Empowerment for the Underserved
  • Support for Underserved/Purpose-Driven Enterprises
  • Serving Underserved Populations (Indirect)

Step 1 is taking the assessment. You have the option to answer fewer questions in about 30 minutes to get a quick snapshot, or to dedicate a few hours to answering all of the questions for a full impact report. Once you’ve completed the assessment, you can then compare your performance against thousands of other businesses to see how you measure up. Finally, you can create a customized improvement plan for your business and use B-Lab’s free best practice guides to help you implement.

In Summary

A benefit corporation is a legal structure, a certification, and a global movement. At its core, being a benefit corporation means that you exist for some public benefit – whether that’s social or environmental. As the B-Corp movement continues to gain momentum, new legal structures will continue to become available that balance profit with purpose. Want to learn more about the social enterprise movement and leverage your career for good? Apply to the MovingWorlds Institute.