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Profitability Takes on a New Meaning with New "Benefit Corporations" aka B Corporations

February 27, 2014

Many social entrepreneurs are interested in both making money and making a difference in the world. Until now, those who wanted to align their business and social missions have been forced to choose between forming a for-profit corporation or LLC and making substantial donations through them, or becoming 501(c)3 or 501(c)4. In a traditional non-profit organization excess benefits and unrelated business income can be subject to excise tax and ordinary corporate income tax, respectively, and activities not related to an entity's mission could eventually jeopardize the tax-exempt status. 

 

Several states have enacted legislation that allow companies to mix business with societal and environmental goals. This legislation incorporates the social change aspect of nonprofits, yet retains the ability to make profits that investors find attractive. 

 

According to bcorporation.net, "Government and the nonprofit sector are necessary but insufficient to address society's greatest challenges. Business, the most powerful man-made force on the planet, must create value for society, not just shareholders. Systemic challenges require systemic solutions and the B Corp movement offers a concrete, market-based and scalable solution." 

 

There are two kinds of B Corps: Certified B Corps and benefit corporations. While they are generally the same thing, there are some distinct differences. "Certified B Corporation is a certification conferred by the nonprofit B Lab. Benefit Corporation is a legal status administered by the state. Benefit corporations do NOT need to be certified." However, the benefit corporation requires a third party assessment. For example, both companies "are required to publicly publish a report assessing their overall social and environmental performance against a third party standard." But, "Certified B Corporation [must achieve] a verified minimum score on the B Impact Assessment (80 points out 200 needed). While benefit corporations are required to publish an annual report assessing their overall social and environmental performance against a third party standard, that report is not required to be verified, certified, or audited by a third party standard organization." 

 

Unfortunately many state governments haven't passed benefit corporation legislation, Connecticut being one. Currently, benefit corporation legislation has been passed in the following states: 

 

 

B Corps are gaining traction in the business world, but states that fail to jump on this new trend, risk losing business to states that have already done so.

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