B Corps is Not a New Legal Form by Keren G. Raz
B Corps, formally known as a Certified B Corporation, is not a new legal form. The benefit corporation is. It can get confusing, I know. I’ve encountered a lot of questions about it when giving presentations about emerging legal forms for social enterprises. In this post, I want to emphasize the difference.
Critically, a Certified B Corporation (hereinafter referred to as B Corps or a B Corporation) is a label given by B Lab to businesses that pass a socially responsible certification process. B Corps is not a legal form and has no legal significance. A benefit corporation, on the other hand, is a new legal form, that became law in Maryland on October 10, 2010. Legislation similar to that in Maryland will become law in Vermont in July and was recently passed by the New Jersey legislature.
Why the difference is significant:
¢ One can be a B Corps and yet be incorporated legally as a C corporation, an LLC, even a sole proprietorship. In other words, a company can be certified as a B Corps without ever incorporating as a benefit corporation
¢ One can be a benefit corporation under Maryland law without being a B Corps. The Maryland law does not require that benefit corporations be certified as B Corps. Rather, it requires that benefit corporations’ social and environmental performance be assessed by an independent third party that makes publicly available or accessible the following information:
1. The factors considered when measuring the performance of a business;
2. The relative weightings of those factors; and
3. The identity of the persons who developed and control changes to the standard and the process by which those changes were made.
The key difference is that the law requires a third party assessment, whereas B Corps is a certification. I do however wonder if benefit corporations that are not certified in the future will have to address potential shareholder lawsuits and what impact that will have on the implementation of the law. If a certification becomes an unstated requirement, then only B Lab, the creators of the B Corps certification, to this author’s knowledge, provide an assessment that meets the law’s requirements.
¢ Beginning on October 1, 2010, about 11 companies registered as benefit corporations. In comparison, there are 369 B Corporations.
B Corps and the Benefit Corporation are easily confused because they are similar in name and purpose. Also, the creators of the B Corporation certification, along with an attorney from the firm Drinker Biddle, drafted the legislation that created the benefit corporation “ the new legal form. B Lab’s certification and the new legal form may have been created for the same purpose “ to facilitate the growth of socially responsible businesses “ but in the eyes of the law, they are two very different things. Thus, praise or criticism directed at the law may not necessarily be applicable to B Corps, and vice versa.
Ellis Carter is a nonprofit lawyer licensed to practice in Washington and Arizona. Ellis advises tax-exempt clients on federal tax matters nationwide.
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