B Corp Certification: What You Should Know
Some entrepreneurs want to do more with their business than just their business. They want their business to be a force for good. More specifically, they want to have a positive impact on workers, the community, and the environment.
A growing number of companies are joining the B Corp movement, as leaders see the value in this type of business model.
Is B Corp certification right for you? It depends on how you want your business to run and the type of branding you want for it. A B Corp is different from a C Corp, although there are similarities.
We’ve created guidelines for those interested in B Corps so you can understand what it does and doesn’t do and why people choose it over other types of corporations. Below are also some links and advice if you choose this route.
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What is a B Corp?
A benefit corporation, or B Corp, is a business entity that’s held to higher standards for its social responsibility or environmental performance. These goals, while a bit broad, are often mean improving the quality of life for workers or altering processes to minimize environmental impact.
Bottom line, the B Corp Community aims to use the power of business for good.
B Corp vs. C Corp
A B Corp is set up like a C Corp. It has shareholders and a board that governs the overall scope of the corporation.
Profit
While the purpose of a C Corp is to make a profit with the additional desire to provide something of value to the public, the purpose of a B Corp is to provide some benefit to the general public.
This can be defined in a number of ways. It could be to provide something material to the public or it could be more abstract like operating a sustainable business.
Reporting
B Corps have more defined measures for reporting on goals than a C Corp.
- A B Corp typically has a third party do a type of audit and report to the public on the progress of reaching community impact goals. This makes a B Corp operate more like a non-profit, who often have the same reporting protocols.
- A C Corp doesn’t have such audits as it isn’t claiming a public purpose, nor it is required to make its operations reports publicly disclosed. Shareholders are typically the only ones to receive such reports. Reports posted to the public typically deal only with profit, loss, revenues and expenditures. They include reasons for the numbers and projections but don’t include progress on future plans or goals.
Accountability
Accountability by board members of a B Corp is different from that of a C Corp.
- The board of a C Corp has a fiduciary responsibility only.
- Those on the board of a B Corp also have responsibilities relating to the environment and social impact. B Corp board members have more room for decisions than those on a C Corp board because they can consider how the community will be affected as well as things like profits and shareholders.
- Another difference in a B Board is those beyond the board have a stake in it. That includes employees and the community. It adheres more to stakeholder governance than shareholder rule. That means anyone impacted by the company’s decisions will have their views taken into consideration on key issues.
The different types of B Corps
B Corps can have endless types because each set their purposes the company feels would make a lasting difference in the world. The mission of a B Corp can be anything it chooses. Below are some of the more common examples of B Corp types and their purposes.
Sustainable materials/Environmental B Corp
These are companies that focus on reducing their carbon footprint while making their products. Companies like Allbirds use sustainable materials, recyclable items, and also have conservation measures in their plants.
Humanitarian B Corp
Companies that list humanitarian purposes are the types that provide essential items, such as Bombas providing their socks, to underserved populations like the homeless or children in poor countries.
Health-focused B Corp
Some companies, like Beautycounter, want “clean” products or products with natural elements rather than synthetic chemicals. Clean products are what these companies produce. Companies also seek to educate the public about what goes into products and often produce information in newsletters, interviews, and campaigns.
Conservation B Corp
Companies can take on a specific cause like the reduction of plastic. A business like Ethique can put that into practice by reducing packaging and making products that are “all-purpose” rather than specific to one use. That equates to less manufacturing and less packaging.
Women/minority empowerment B Corp
A business may want to take on improving the lives of women or minorities so they may produce a line of products focusing on empowerment or some other issues. Athleta designs clothes for female athletes and donates heavily to projects that empower girls and women.
Who should form a B Corp?
One common theme of those who started B Corps is they didn’t start with an idea of a product or service first. Their first business idea was about the type of public benefit they wanted to provide. The product or service was developed around the idea of public benefit.
For instance, some companies love the environment and want to help protect it. They develop sustainable outdoor gear that helps others enjoy the environment while the company also uses some of the profits to plant trees or contribute to ecology sustainability efforts.
The person that should form a B Corp is someone that has a greater purpose beyond a business in mind. The business is just a way to fulfill that greater purpose. They don’t mind extra eyes on the business, public transparency, and audits to ensure they are meeting the desired purposes. In fact, they welcome it.
Those who want to make their driven purpose a part of their company brand should consider becoming a B-Corp.
Advantages of starting a B Corp
Certified B Corporations have some advantages, although most are indirect rather than direct tax benefits. Below are some reasons people become B Corps.
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Quality employees
A B Corp makes its direction and mission public, so those who have the same mindset want to work for it. These are quality employees who plan on staying long-term.
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Better control
One of the problems with a business is that it sometimes becomes something the owner doesn’t recognize when it grows. B Corp owners have more control over the company’s direction because it isn’t focused solely on profits.
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Increased credibility
B Corps must prove what they are doing for the public good. That creates a better public image that people understand and can trust.
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Constant improvement
B Corps go through recertification every two years by B-Lab. That means the company must constantly be looking for ways to improve.
Disadvantages of starting a B Corp
There are two major disadvantages of becoming a B Corp. While that is few in number, each can have a huge impact on your business.
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High cost
B Corps usually cost more to run because of the higher standards for products, increased benefits for employees and additional cost to keep up with conservation and sustainability standards.
Beyond that, the biggest part of the increased cost is in additional legal and administrative paperwork and associated fees for a B Corp to get certified and maintain its standards. B-Lab certification fees range from $1,000 to $50,000 a year based on the company’s revenues.
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Backlash risk
Companies that make their purpose part of their branding will draw attention from critics, skeptics and haters. Some will go deep to prove that you aren’t being truthful. Some won’t like your purpose. It could be a public relations disaster if there is ever a scandal.
Steps to set up a B Corp
To become a certified B Corp, you must complete a rigorous process through B-Lab. Remember, B Corps are held to the highest standards, and those standards start immediately.
To start, visit bcorporation.net, which outlines the entire certification process. The steps to join this global movement include:
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Register for assessment
You must register for a the free, confidential online assessment. The B Impact Assessment is intense. You’ll use a Legal Requirement Tool to access legal accountability and you’ll conduct a Risk Review. You’ll also complete a Disclosure Questionnaire that discuss business practices.
2
Learn your score
Your impact report is scored by B-Lab. Your company must meet a minimum score of 80 to be considered for B Corporation Certification.
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Evaluation
A member of B-Lab reviews your company’s eligibility. He or she will review your assessment and explore possible challenges.
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Verification
The verification process requires paperwork on all employees, suppliers, and vendors. The information provided in the assessment must be supported with official documentation.
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Sign a B Corp agreement and earn certification
If everything checks out, you’ll move into the post-verification phase and sign a B Corp agreement. With a signed and approved agreement, a company officially becomes B Corp certified.
What resources are available to provide further assistance?
Becoming a B Corp takes a lot of work. Fortunately, there are those who can help.
The SOS office has all the forms and information you need about starting your business.
B-Lab is the one that certifies B-Corps so its site gives you all the details on how to achieve that goal.
The SBA has details about business funding, rules and regulations.
SCORE is a volunteer group that offers advice, mentorship, education, and connections for entrepreneurs.
FAQs
Is becoming a B Corp worth it?
Those who have succeeded with it are happy with their decision. They say it’s developed, loyal employees and customers. Plus, it has done something the community can take pride in.
Are B Corps taxed differently?
No, B Corps are taxed the same as C Corps or S Corps and still must pay state taxes as well as other taxes. It is a for-profit company so it’s taxed the same as other companies.
Is it hard to get a B Corp certification?
It is challenging. B Lab uses a tool called the B Impact Assessment and businesses must score a minimum of 80 out of 200 points to get certified. The assessment looks at the company’s effect on its environment, community, workers, and customers.
Does the IRS recognize B Corps?
B-Corps is a term used at the state level. It isn’t a separate legal structure or part of the tax code. It is a phrase to denote a specific type of company.
Are there a lot of B Corps?
Many emerging companies are set up as B-Corps. There are 3,000 B-Corps in the U.S. and more throughout the world. However, most companies establish themselves as C Corps.
Do you have to be a large company to be a B Corp?
No, you can be a small company and still be a B Corp. There are different rules and regulations based on company size.
However, running a B Corp usually includes higher costs, so it is mostly larger companies that seek and achieve the status.
What companies can become B Corps?
The two basic requirements for seeking B Corp status are that you must be a for-profit business and must have been in business for at least 12 months. There are other requirements once you apply.
Can a nonprofit become a B Corp?
No. Nonprofit organizations cannot become B Corp.
What is the largest B Corp?
Danone NA is the largest B Corp in the world. It has $6 billion in sales. Its size and scope created numerous challenges to gain B Corp certification. Other notable B Corps include Patagonia and Ben & Jerry’s.
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