A benefit corporation is a for-profit corporation formed under state law to pursue both business purposes and a broader public benefit. Unlike a traditional corporation, which is generally focused on shareholder value, a benefit corporation is typically required to consider the impact of its decisions on additional stakeholders, which may include employees, customers, the community, society, and the environment.
Benefit corporations are legal entities created under state benefit corporation or public benefit corporation statutes. The exact terminology and requirements vary by state. For example, some states use the term “benefit corporation,” while Delaware uses “public benefit corporation.”
A benefit corporation should not be confused with a Certified B Corporation, also known as a B Corp. A benefit corporation is a legal status under state law. A Certified B Corp is a private certification issued by the nonprofit B Lab to companies that meet B Lab’s standards for social and environmental performance, accountability, and transparency. A company may be a benefit corporation without being a Certified B Corp, and a company may pursue B Corp certification even if it is not organized as a benefit corporation, subject to B Lab’s requirements.
Benefit corporations are generally required to operate in a manner that creates a public benefit in addition to generating profit. Depending on the state, they may also be required to prepare a periodic benefit report describing the company’s pursuit of its public benefit purpose and its impact on stakeholders. The reporting requirements, whether the report must be made public, and whether a third-party standard must be used vary by state.
Potential Features of a Benefit Corporation
- It is a for-profit corporation and may conduct business like other corporations.
- It allows the company to include a public benefit purpose in its corporate structure.
- It may provide directors and officers with statutory authority to consider stakeholder interests in addition to shareholder financial interests.
- It may appeal to customers, employees, investors, and business partners who value socially responsible or mission-driven business practices.
- It may be compatible with, but is separate from, Certified B Corp status through B Lab.
- It may be subject to additional reporting, governance, or transparency requirements depending on the state of formation.
To form a benefit corporation, the appropriate formation document must be filed with the state filing office, and the required state filing fees must be paid. Existing corporations may also be able to convert to benefit corporation or public benefit corporation status by amending their governing documents, subject to applicable state law and shareholder approval requirements.
Because benefit corporation laws vary by state, business owners should review the specific requirements of the intended formation state before proceeding.
For more information regarding Certified B Corp certification, please visit B Lab’s website.
Need to know more or have questions about forming a benefit corporation? Contact us for assistance.
Click here to start the formation process for your new Benefit Corporation.
