B Corporation Meaning
In many states, a benefit corporation is formed or registered with the state government in the same way as a for-profit corporation. The corporation would then apply for benefit certification to become a B corp. Benefit certification requires corporations to balance shareholder interests with social or environmental missions.
B corps are becoming increasingly popular in the US. As of April 2020, 35 states, as well as Washington D.C., have passed legislation to designate B corps as legal business entities.
B Corporation Requirements
The requirements for qualifying as a benefit corporation can be different depending on the state where your business is located. Still, B corps usually must do at least these two things:
- Have and Pursue a Goal to Benefit Society or the Environment: B corps must have a goal to produce a public benefit and take steps to accomplish that goal.
- Publish a Benefit Report: B corps must publish an annual benefit report that explains their efforts to meet their public benefit goals.
Some states also require benefit corporations to receive a third-party certification.
Should I Form a B Corporation?
Before deciding whether a B corp is a good business structure option for you, it is important to be familiar with the advantages and disadvantages of benefit corporations.
In addition to the advantages that a standard corporation offers — such as personal liability protection and potential tax benefits — there are several specific advantages of a benefit corporation, including:
- Reduced Liability: B corps legally require owners to pursue public benefit goals, allowing owners to make business decisions with their social goals in mind without having to worry about shareholder lawsuits related to a breach of fiduciary duty.
- Attractive to Top Talent: Many workers, especially younger ones, find working for a socially conscious company very appealing. This can be an advantage when competing for the best employees.
- More Investment Opportunities: Many investors are interested in investing in companies with a social mission.
- More Recognition: Becoming a B corp can increase the amount of attention your business receives.
- Personal Satisfaction: Owning a business that benefits society can make you feel good and make your job more enjoyable.
Benefit corporations can also come with some disadvantages.
- More Obligations and Paperwork: While the B corp structure allows owners to pursue public benefit goals, it also requires them to do so, which means additional rules and regulations to follow. This can mean more paperwork as well as potentially more liability if the social goals are ignored.
- Developing Rules and Regulations: B corps are a relatively new type of business structure. For this reason, the rules and regulations surrounding them are still changing, adding some uncertainty around their operation.
- Limited Availability: As of April 2020, B corps are only recognized as a legal entity in 35 states and Washington D.C., meaning they aren’t available as an option in the 15 other states.
How to Form a B Corporation
The exact steps for forming a benefit corporation can vary from state to state. However, most states require you to file the Articles of Incorporation just like with standard C corporations.
In some cases, you will have to include a specific statement in the form that you are forming a benefit corporation, and some states have separate forms for B corps. You should contact the appropriate government office in your state to determine exactly what is required.
B Corporation Taxes
B corps do not have any special tax treatment — they have the same tax options as regular corporations.
B corps must file a corporate tax return and pay the corporate tax rate of 21% on all taxable earnings. If a corporation owes taxes, it must estimate the amount of tax due for the year and make payments to the IRS every quarter.
In addition to the corporate tax, dividends to shareholders are subject to individual income taxes, meaning that any money paid out as dividends is taxed twice. This is commonly referred to as double taxation.
However, earnings kept by the company for things like purchasing equipment or making other investments in the business, called retained earnings, are only taxed the one time at the corporate level.
Corporations also have the option to be taxed as an S corporation (S corp) if they qualify, which changes their tax structure considerably.
Certified B Corps
There is often confusion between B corps and Certified B Corps, with many people thinking they are the same thing. A Certified B Corp is a designation given to corporations by the third-party nonprofit B Lab, rather than an actual business structure.
However, there is often overlap between the two, with many states requiring benefit corporations to receive the Certified B Corp designation.
B Lab has the following requirements for companies to receive and maintain Certified B Corp status:
- Complete the B Impact Assessment
- Complete an assessment review
- Pass a background check of the business’ operations, executives, and founders.
- Sign a B corp agreement
- Regularly update their impact assessment
- Share an annual B Impact Report
- Pay an annual fee
How to Start a Business
Once you have learned about the advantages and disadvantages of benefit corporations and decided if it is the right business structure for you, you will need to actually form and set up the business. Whether you choose to form a B corporation or some other structure, there are more things to take care of before you are ready to sell your products or services.
You can read these in more detail in our state-by-state How to Start a Business guides, but here is a quick rundown of some basic steps after forming your business:
- Register for taxes
- Create business banking and credit accounts
- Set up accounting
- Obtain permits and licenses
- Get insured
- Establish a web presence
Benefit Corporation FAQ
How many states have B corporations?
As of April 2020, 35 states, as well as Washington D.C., recognize B corps as legal entities.
Is there a B corporation certification?
Yes. Corporations can receive a third-party certification that recognizes them as a Certified B Corp. The nonprofit B Lab does this certification.
Are there B corporation tax benefits?
No. B corps do not receive any unique tax benefits.
Can a B corp be an S corp?
Yes. B corps can apply for S corporation (S corp) tax status.
Are a B corp and a Certified B Corp the same?
No. A B corp is a legal business entity known as a benefit corporation, while a Certified B Corp is a third-party certification for which companies can apply. However, some states do require B corps to be Certified B Corps.
Are B corporations and nonprofits the same?
No. Unlike nonprofits, B corps are created to make a profit for shareholders.
Are there benefit LLCs?
Yes. As of April 2020, benefit LLCs (BLLCs) were recognized as a legal business structure in five states — Delaware, Maryland, Oregon, Pennsylvania, and Utah.