Legal matters, business strategy,
and life perspectives from the mind of a non-attorney.
Shown below are several different types of business entities:
Limited Liability Company
Limited Liability Partnership
Massachusetts Business Trust
On November 27th, 2017, Wisconsin became the 34th state to pass Legislation allowing the existence of Benefit Corporations (B Corps). Wisconsin companies can begin filing the B Corp election on February 26th, 2018.
WHO CARES! Toss it on the pile, right??
B CORPORATIONS ARE CHANGING THE GAME.
How do B Corps change the game?
In the United States, for-profit Corporations are required to act “solely for the ultimate purpose of maximizing financial returns for shareholders.” In other words, the people pulling the strings are legally obligated to make as much money as possible for the people who have invested in the company. Profit. That is the only consideration that matters. If there is an opportunity to make money, the powers that be must take it, or face the wrath of disgruntled investors and cunning corporate attorneys.
B Corps, in the 34 states that allow them, are also for-profit Corporations. Their directors are also legally obligated to make as much money as possible for shareholders. However, directors are also legally obligated to consider the social impact that their decisions have on society.
Let me kick you two scenarios to help explain the point:
- C Corp. Directors are faced with the opportunity to experience significant cost-savings by relocating a large manufacturing plant overseas. Their research into the opportunity shows extremely low risk and potential for significant returns for shareholders. 10,000 jobs would be lost, severely damaging the community where the plant resides. If the Directors choose not to move forward with the relocation, they would likely face significant public scrutiny, termination, lawsuit, and career damage. Why? Because their only legal obligation is to maximize returns for shareholders.
- B Corp. Directors are faced with the same opportunity. This time, Directors are legally obligated to consider and balance the financial incentive of relocating with the social impact it would create for the community. They can choose to act on either side and can balance the negative social impact with the positive financial opportunity however they see fit.
Unless a basis is created by the company itself, there is no hard-and-fast rule that says how much consideration directors should give to financial return versus social impact. The B Corp structure simply gives Directors the latitude to make decisions that truly are in the best interests of shareholders AND society as a whole.
Do B Corporations get a tax break?
No. B Corps are taxed like other Corporations. They may elect the S or C treatment.
Is anyone actually going to use this election?
Yes. As of today, there are over 2,300 B Corps across 130 industries. Here are a few of the most popular B Corps:
Mission: Preserving and expanding Ben & Jerry’s social mission, brand integrity and product quality, by providing social mission-mindful insight and guidance to ensure we’re making the best ice cream possible in the best way possible.
Mission: Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.
Mission: Since 1969, Natura’s mission has been to help build a better world through our commitment to transparency, sustainability and well-being.
What are some potential business benefits beyond the ability to “do the right thing”?
Access to talented workers. Young, talented individuals want to work for companies that are changing the world. Organizing as a B Corporation legitimizes a company’s cause as more than just lip-service. In today’s competitive environment, B Corps are an outstanding recruiting tool.
Increased employee retention and motivation. Similarly, a workforce is inspired by more than just a paycheck. Employees work with blood, sweat, and tears when they identify with their company’s cause.
Increased customer loyalty. Some customers are willing to pay more – and come back time and again – for brands that have a strong purpose. Socially responsible consumers are a real thing, and there are more and more of them every day.
What additional requirements do B Corps have?
Requirements change slightly depending on what state the company is organized in, but basically, B Corps have to create an annual benefit report that assesses their overall social and environmental performance. Most B Corps make this report available to the public – it’s generally a good marketing strategy to do so – and it’s a best practice to benchmark the company’s performance against a 3rd party standard. Reports can be generated for free from http://bimpactassessment.net/
Here is a sample report.
Want to get set up as a B Corp? I know a few good attorneys who can help with that…
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