The skinny on Benefit Corporations

I have some great news–B Corporations became an entity recognized in Ohio!

Most business understand that “giving back” is important, both for the community and for the businesses’ underlying success. And, using your business in a meaningful way is just more fun anyway!

So, what’s a B corp.?

A B corporation is a company with a socially minded purpose, intended to be beneficial to society as a whole. For example, Patagonia proudly claims that it is “in business to save our home planet” and serves as a good example of a B corp.

Until Ohio enacted legislation that permitted the formation of B corporations, there were two kinds of corporations: for profit and nonprofit. Both have pros and cons for a company that is trying to be socially minded. For example, a for profit is set up to have many investors, raise funds, and pay shareholders for their investments. This is an easier way to raise money, because it is enticing to say “hey, we’re super successful and we’ll pay you for your investment!”

This sounds great, except for the fact that when you take people’s money as an investment in your company, you, as the director, are under pressure (real, legal obligations imposed by the actual law) to maximize profits, which often may be at the expense of the social cause. BOOO!

On the flip side, a nonprofit can and must be completely 100% devoted to its social or environmental purpose, and (likely because of that) nonprofits cannot have any shareholders/investors. Therefore, nonprofits cannot pay people for their investments. Bummer. This obviously could dissuade many people from giving money. Even if they care about your cause, they might not have the money to be charitable. This is why many nonprofits have trouble raising capital.

But…Viola! The benefit corporation was formed to allow a socially minded companies access to capitalization through investors and paying shareholders. The deal is that a B corp. must contribute to the public good (ok, great) AND the pressure to maximize profits is greatly reduced so that the focus can be on the social or environmental purpose.

How do you form one?

At a minimum, a new corporation may elect to be a B Corp by including one or more beneficial purposes in its Articles of Incorporation. An existing corporation, so long as it is not publicly traded, may become a B Corp by amending its Articles of Incorporation to include a beneficial purpose. Including a beneficial purpose in the Articles of Incorporation does not require the corporation to prioritize the beneficial purpose above all other factors, but it does require that the beneficial purpose always be considered when decision are made. To take it a step further, the B corp should obviously use its governing documents to spell out how decisions are to be made, and even address how much deference will be given to certain stakeholders when decisions are made, i.e., you should determine ahead of time how much you want to prioritize the mission over other considerations.

The more you can convey about your social mission and how you intend to prioritize it in your organizational and governing documents, the clearer your shareholders will be on whether they want to get on board. This is a good thing for all involved. If you organize as a B corp, you want your shareholders to be clear about the fact that your company intends to measure the impact of its activities and pursue its social mission in tandem with pursuing profits. Decisions made through this lens are often very different than if the goal is strictly maximizing profits.

The major leagues of B corps—becoming a “Certified B Corporation” through B Lab.

Calling yourself a B corp is one thing, while actually measuring the real-world impact of your efforts is another thing entirely. Certification means you are measuring your impact and constantly monitoring for improvements along the way to achieving your mission. B Lab is a nonprofit that exists to evaluates whether b -corps are effectively using their companies to contribute to the public good.

B Lab measures companies by using these categories:

Measurable social performance;
Accountability;
Transparency; and
Measurable environmental performance.

If you are certified through B lab, you are permitted to include “certified B corp” on your products or advertise yourself as a certified B corp. This designation does mean something to plenty of people may obviously influence socially minded customers to buy your products and services.

Contact Wick law if you’d like help navigating structuring a b corp and / or getting certified through B Lab. Remember: the determination of whether to be B-corp certified should be based on several considerations and we can help you understand the pros and cons for your company.

Ok, friends, if you are interested in knowing more about B Corps, Call me! 614-572-6366. Email me! mwick@mwicklaw.com.

Wick Law, LLC is a small business legal practice, representing owners, investors, and entrepreneurs in all aspects of commercial, corporate, and business law, estate planning, contracts and negotiations, business litigation, and real estate. For more information: Contact 614-572-6366, visit www.mwicklaw.com, or email us at mwick@mwicklaw.com. Wick Law, LLC is located in Columbus, Ohio.

(Materials in this article have been prepared by Wick Law, LLC for general informational purposes only. This list is for educational purposes and is not to be considered exhaustive. More items could be added to this checklist based upon the type of transaction or industry standards. These materials do not, and are not intended to, constitute legal advice. The information provided is not privileged and does not create an attorney-client relationship with Wick Law, LLC or any of the firm’s lawyers. This checklist is not an offer to represent you. You should not act, or refrain from acting, based upon any information in this checklist. Wick Law, LLC maintains offices in Columbus, Ohio, and has lawyers licensed to practice in Ohio and in the United States District Court, Southern District of Ohio. The firm does not intend to practice law in any jurisdiction where the firm is not licensed.)