Definition Of B Corporation

A benefit corporation (B corp) is a for-profit company with a mission to help the community or the environment. While normal companies are merely required to improve the company’s wealth for shareholders, benefit corporations are required by law to balance this fiduciary responsibility with the pursuit of their social or environmental goal.

Topics:

B Corporation Definition and Meaning

Should I establish a B Corporation?

B Corps certification

How to Begin a Business

B Corporation Frequently Asked Questions

B Corporation Definition

A benefit company is founded or registered with the state government in many states in the same manner that a for-profit corporation is. After that, the company would seek for benefit certification in order to become a B corporation. Corporate benefit certification necessitates balancing shareholder interests with social or environmental agendas.

B corps are becoming more common in the United States. As of April 2020, 35 states and the District of Columbia have approved laws designating B corps as legal corporate organisations.

Requirements for a B Corporation

The procedures for becoming a benefit company vary based on the state in which your firm is situated. Still, B corps are required to perform at least two things:

Have and Pursue a Goal to Benefit Society or the Environment: B corporations must have an aim to benefit society or the environment and take actions to achieve that goal.

Produce a Benefit Report: B companies are required to publish an annual benefit report outlining their efforts to accomplish their public benefit objectives.

Some states additionally require benefit companies to be certified by a third party.

Should I Establish a B Corporation?

Before considering if a B corp is an appropriate company structure for you, it is critical to understand the benefits and drawbacks of benefit companies.

Aside from the benefits that a conventional company provides, such as personal liability protection and possible tax benefits, there are numerous special benefits of a benefit corporation, which include:

Reduced Liability: Because B companies are legally required to pursue public benefit purposes, owners may make business choices with their social aims in mind without fear of shareholder litigation for breach of fiduciary duty.

Attractive to Top Talent: Many employees, particularly younger ones, find working for a socially aware organisation intriguing. When competing for the top personnel, this might be advantageous.

More Investment Opportunities: Many investors want to invest in firms that have a social purpose.

More Attention: Becoming a B corporation might help your company get more attention.

Personal fulfilment: Owning a firm that serves society may make you happy and make your work more fun.

Benefit companies may potentially have some drawbacks.

More Obligations and Paperwork: The B corp structure not only permits owners to pursue public benefit objectives, but it also forces them to do so, which entails more laws and regulations to follow. This may result in extra paperwork as well as significant liabilities if the social aims are not met.

Creating Policies and Procedures: B corporations are a relatively new form of corporate organisation. As a result, the laws and regulations governing them are continually evolving, creating considerable confusion about their functioning.

Limited Availability: As of April 2020, B corporations were only recognised as a legal organisation in 35 states and Washington, D.C., which means they were not an option in the remaining 15 states.

How to Create a B Corporation

The specific processes for founding a benefit company differ by state. However, much as with normal C companies, most states require you to submit the Articles of Incorporation.

In certain circumstances, you must add a statement in the form stating that you are incorporating a benefit company, and other states have different forms for B companies. To find out precisely what is necessary, contact the proper government agency in your state.

Taxes on B Corporations

B businesses have no special tax status and have the same tax alternatives as normal corporations.

B corporations are required to submit a corporate tax return and pay the 21% corporate tax rate on all taxable profits. If a company owes taxes, it must estimate the amount owed for the year and make quarterly payments to the IRS.

Dividends to shareholders are subject to individual income taxes in addition to the company tax, meaning that any money paid out as dividends is taxed twice. This is generally known as double taxation.

However, profits maintained by the corporation for purposes such as acquiring equipment or making other business expenditures, known as retained earnings, are only taxed once at the corporate level.

Corporations may also elect to be taxed as a S corporation (S corp) if they meet certain criteria, which significantly alters their tax structure.

B Corps certification

B corps and Certified B Corps are often confused, with many people believing they are the same thing. A Certified B Corp is a third-party nonprofit B Lab certification granted to companies, rather than an actual corporate structure.

However, there is much overlap between the two, with many jurisdictions mandating benefit companies to be Certified B Corps.

For organisations to acquire and retain Certified B Corp status, B Lab has the following requirements:

Finish the B Impact Assessment.

Complete an evaluation review

Pass a background check on the operations, management, and founders of the company.

Sign a B corporation agreement.

Update their effect evaluation on a regular basis.

Distribute a yearly B Impact Report.

Pay a yearly charge

How to Begin a Business

Once you’ve studied about the benefits and drawbacks of benefit companies and determined whether it’s the proper business structure for you, you’ll need to create and establish the company. Whether you choose to incorporate a B company or another structure, there are a few more steps to follow before you may offer your goods or services.

These are covered in more depth in our state-by-state How to Start a Business guides, but here is a short summary of the fundamental processes after creating your business:

Fill out a tax return

Establish corporate banking and credit accounts.

Create an accounting system.

Obtain all necessary permissions and licences.

Obtain insurance.

Create a web presence

Benefit Corporation Frequently Asked Questions

In how many states do B companies exist?

As of April 2020, 35 states and Washington, D.C. recognise B corporations as legal organisations.

Is a B company certification available?

Yes. Corporations may be recognised as a Certified B Corp through a third-party certification. This certification is provided by the non-profit B Lab.

Are there any tax advantages to forming a B corporation?

No, B corporations do not enjoy any special tax advantages.

Can a B corporation become a S corporation?

Yes. B corporations are eligible to apply for S corporation (S corp) tax status.

Are a B corporation and a Certified B Corporation the same thing?

No, a B corp is a legal corporate organisation known as a benefit corporation, while a Certified B Corp is a third-party certification that businesses may seek for. Some jurisdictions, however, require B Corps to be Certified B Corps.

Are B companies and nonprofits interchangeable?

No, unlike NGOs, B corps exist to produce a profit for their shareholders.

Are benefit LLCs available?

Yes. Benefit LLCs (BLLCs) were recognised as a legal corporate form in five states as of April 2020: Delaware, Maryland, Oregon, Pennsylvania, and Utah.