Daniel T Goodwin Law
B Corps vs. Benefit Corporations: What Are They & What’s the Difference?
As socially conscious entrepreneurship becomes more visible and viable, you may keep hearing the terms “B Corp” and “Benefit Corporation” or “Public Benefit Corporation.” What do these terms mean and how are they relevant to a Colorado small business owner?
Many use the terms “B Corp” and “Benefit Corporation” interchangeably, but they are in fact very different things!
A B Corp is a for-profit entity that has obtained a voluntarily certification from a certain nonprofit organization headquartered in Wayne, Pennsylvania, called B Lab.
As of the date of this posting, there are 1,925 certified B Corps in 50 different countries spanning 130 different industries. Some nationally-recognized Colorado B Corps include New Belgium Brewing Co. and Bhakti Chai.
Obtaining a B Corp certification requires passing the B Lab Impact Assessment, which analyzes a company’s operations and provides a score based on meeting higher standards of transparency, accountability, performance and impact on the community. Passing the assessment test requires a score of at least 80 out of 200 points. There are many workshops and boot camps available in the Front Range area for business owners looking to hit the Impact Assessment’s various benchmarks. After passing the assessment, B Corps must pay a membership fee based on annual revenues.
Obtaining B Corp certification allows a business to join a community dedicated to creating a more just and conscious economy yet still driven by profit motives. B Corps organize various gatherings around the world, including an annual retreat, and such events provide opportunities to network and support other like-minded business owners.
A Benefit Corporation is a type of business entity (i.e., a special kind of corporation) that is authorized by state law. As of the date of this posting, 31 states – including, as of April 4, 2014, Colorado – have recently enacted legislation to allow for these entities. This legislation allows socially conscious entrepreneurs another entity option when starting a business.
The Benefit Corporation movement, largely spearheaded by B Lab, was to fix what many saw to be a major limitation in standard corporate law.
As you may know, the business and affairs of any for-profit corporation must be managed by a board of directors. Traditionally, the individuals on the board of directors have a legal duty to manage the affairs of the corporation in the company’s best interest. If they do not follow this duty, they could be liable to the corporation’s shareholders for breach of their duties.
So…what does “in the company’s best interest” actually mean? Some perceived it to mean only the maximization of shareholder value. This would severely limit the goals and the general ethos of the socially-conscious business/B Corp assessment movement. If a board of directors was trying to decide between two options, with Option 1 promising high profits but harm to the environment and Option 2 resulting in lower profits but no harm to the environment, the maximization of shareholder value theory would require the board of directors to pick Option 1.
Benefit Corporation legislation has thus been enacted to address this limitation in traditional corporate law.
Beyond corporate doctrine, however, forming a business as a Benefit Corporation may be important for reasons of marketability, relaying a message to current and potential employees and customers, and signaling participation in the socially-conscious business movement.
Colorado Public Benefit Corporations
The Public Benefit Corporation Act of Colorado (“PBCA”) contains the relevant provisions for those electing to operate their corporations as a Public Benefit Corporation (a “PBC”). A Colorado PBC is a for-profit corporation that is “intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner.”
What would be considered a “public benefit”? The PBCA defines public benefit as “one or more positive effects or reduction of negative effects on one or more categories of persons, entities, communities, or interests other than shareholders in their capacities as shareholders, including effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technological nature.”
A key thing to realize is that PBCs are still subject to the rules and requirements contained in the regular corporate statutes, including the Colorado Business Corporations Act and the Colorado Corporations and Associations Act. The PBCA merely imposes “additional or different requirements, in which case such additional or different requirements apply.” The primary differences are:
- A PBC’s Articles of Incorporation must list one or more public benefit which the company must strive to achieve.
- A PBC’s name must contain the words “public benefit corporation” or the abbreviation “PBC” or “P.B.C.”
- A PBC’s board of directors must manage the company to balance (1) the pecuniary interest of the shareholders; (2) the best interest of those affected by the company’s conduct, and (3) the public benefit(s) listed in the Articles of Incorporation.
- A PBC must prepare an annual benefit report with (1) a description of how the company promoted the benefits listed in the Articles of Incorporation and any obstacles the company faced in promoting those public benefits and (2) an assessment of the overall social and environmental performance of the company against a third-party standard. This annual report must be provided to each shareholder of the PBC and posted on its website.
- Any share certificates of the PBC must consciously state the company is a public benefit corporation.
A PBC is formed the same was a traditional Colorado corporation would be formed – by filing Articles of Incorporation with the Colorado Secretary of State. Thereafter, all other documentation used to organize a PBC is extremely similar as what is used to organize a traditional Colorado corporation.
The PBCA specifically protects directors of a PBC from lawsuits by third parties who are interested in the public benefits listed in the Articles of Incorporation and by people who may be affected by the PBC’s conduct.
This section is meant to be a general summary of the PBCA and if you are thinking of creating such an entity or converting your current corporation to a PBC, consulting with an attorney is strongly advised.
Section 7-101-501 et cet., C.R.S. Added by Laws 2013, Ch. 230, § 1, eff. April 1, 2014.
Section 7-101-503(1), C.R.S.
Section 7-101-503(2), C.R.S.
Section 7-101-502, C.R.S.
Section 7-101-503(1)(a)-(b), C.R.S.
Section 7-101-503(4), C.R.S.
Section 7-101-506(1), C.R.S.
Section 7-101-507(1)(a)-(b), C.R.S.
Section 7-101-507(4), C.R.S.
Section 7-101-505, C.R.S.
Section 7-101-506(2), C.R.S.