How a Benefit Corporation Protects the Aims of a Social Enterprise

If you live in one of the 26 states (plus the District of Columbia) that have approved them, you’re probably starting to hear quite a bit about benefit corporations. What are they and why do they exist?

companies that want to pursue a social good can create a benefit corporationBenefit corporations are a subset of social enterprises — profit-making companies that aim to achieve a higher social good. The key distinction is they take the social-enterprise principle one step further by codifying their social principles into their articles of incorporation, which spell out just what the corporation supports and the percentage of its profits that go to its charitable causes.

Just as ordinary for-profit enterprises are accountable to their shareholders to produce sufficient profits, benefit corporations are accountable to their various stakeholder groups — stockholders, employees, trustees, consumers — to advance certain causes.

In the summer of 2014, Connecticut became the 26th U.S. state to pass legislation recognizing benefit corporations. One of the chief reasons for the legal recognition of benefit corporations is to put socially conscious business goals on the same par as profitability in defining the responsibilities of an enterprise’s officers.

Pros and cons of benefit corporation status

Such legal status is a two-edged sword. It protects socially minded directors of businesses from legal action by shareholders, who might argue that the business has strayed from its profit-making objectives. At the same time, businesses that become benefit corporations cannot abandon or minimize their social principles when times become tough and profits become leaner.

“This law was passed, in part, to make it clear that officers and directors of corporations will not be hamstrung in their corporate activity by adhering to the single-minded obligation to maximize shareholder returns when exercising their business judgment,” said Andrew Glassman, chair of the Business and Finance Department at Pullman & Comley, one of Connecticut’s largest law firms, in a post on the firm’s website.

Now, Canada may be joining the push for statutory recognition of benefit corporations. In September, the Canadian Bar Association recommended that the Canadian Parliament change the federal statute under which businesses are established to make it clear that corporations can pursue public benefit purposes.

“In the current social environment, there is gathering support for the ‘triple bottom line — profit, people and planet,’ ” said Dennis Tobin, a partner at Toronto-based Blaney McMurtry, in an article in the law firm’s newsletter. “There is certainly room in Canada’s statutes and case law to argue that other forms of benefit are in the best interests of the corporation. But shareholders are not to be ignored and they may have a justification for some activism if the broader purpose which the corporation intends to pursue has not been communicated and approved.”

One key drawback to becoming a benefit corporation is the additional disclosures required. A company needs to provide exhaustive details on its social and environmental achievements, and by necessity must select and hire a third-party agency to certify its performance.

One of those third-party entities is B Lab, which certifies both benefit corporations and a much larger cadre of enterprises known collectively as B corps.

How a benefit corporation differs from a B corp

To confuse matters somewhat, the terms benefit corporation and B corp are often used interchangeably, but they aren’t the same thing. B corporations have been certified by the nonprofit B Lab as having met specific social-welfare and environmental-protection goals. They don’t have to become benefit corporations to be certified as B corps — in fact, they may be domiciled in states or countries that don’t recognize benefit corporations.

B corp certification, meanwhile, is akin to LEED certification for green buildings and “fair trade” certification for coffee. B corporations originated in Europe; today there are approximately 1,100 certified B corporations in 60 industries and 35 countries.

Just as certified B corporations are under no obligation to incorporate as benefit corporations, benefit corporations can earn B corp certification from the B Lab. But they don’t have to, either.

B Lab provides certified B corporations with access to services such as marketing, sales and investor funding. An additional benefit is being able to conduct business-to-business sales with other certified B corporations.

B corporation job opportunities

A fun footnote for students: The official website for B corps – www.bcorporation.net – operates a robust jobs board. B corporations might provide a great place to launch (or continue) your career.

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