Understanding Benefit Corporations

CT ESSENTIAL COMPLIANCE INSIGHTS UNDERSTANDING BENEFIT CORPORATIONS

Written by CT in BEYOND CORPORATE SOCIAL RESPONSIBILITY partnership with In its most simple form, success for many organizations is defined by the bottom line – experts from B Lab. revenue and profits. Organizations can expand upon this to include making a positive social and environmental impact as long as these efforts can be justified, similar to the long-term interests of profit. Typically called Corporate Social Responsibility (CSR), these good-will efforts are a separate program within an organization and are conducted apart from the main business goals. For instance, if an organization sells clothing, it may have a separate CSR program that holds quarterly clothing drives to benefit those in need. While it is part of the company, the CSR effort is not the main focus and the company is not legally required to conduct its CSR activities. More recently, organizations seeking to go beyond CSR are taking it one step further by legally formalizing their social and environmental mission-related endeavors to be the main business objective.

THE BIRTH OF BENEFIT CORPORATIONS Benefit corporations go beyond CSR or hybrid nonprofit ventures. They are for-profit “27 states already have organizations that are required by law to create a material positive impact on society and the passed legislation environment in addition to generating a profit. Often times the mission is simply integrated recognizing this into a company’s day-to-day operations. Directors and shareholders define what it means to corporate form, and be good for society and the environment — not a predetermined set of rules created by the the number continues government. These corporations are a new type of corporate form that gives entrepreneurs to grow with 19 states and investors more freedom when determining what incorporated entity best meets their currently working on needs. A registered public agent is a helpful resource when making this decision. passing similar laws.” Demonstrating how popular benefit corporations are becoming, 27 states already have passed legislation recognizing this corporate form, and the number continues to grow with 19 states currently working on passing similar laws. Over 1,100 companies have registered as benefit corporations, including well-known businesses like Method, Plum Organics, Klean Kanteen and Patagonia.

Fueling this movement is B Lab, a nonprofit organization dedicated to using the power of business to solve social and environmental problems. In addition to pushing legislation forward, B Lab also provides an opportunity for companies to earn recognition as a Certified B Corporation by meeting B Lab’s rigorous standards of social and environmental performance, accountability, and transparency.

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It is important to note the difference between a benefit Business Differentiation corporation and a Certified B Corporation. A benefit > According to the same Nielsen survey, 64% of North corporation is a corporate form, which is incorporated in the Americans prefer to buy from companies that give back to same manner as a traditional for-profit corporation. It does society not need certification through B Lab. However, if certification > Becoming a benefit corporation demonstrates a true and is obtained, the benefit corporation’s credibility is lasting dedication to the cause that will weather any capital strengthened and reinforced. To add perspective, certification raises or IPOs is similar to how many foods claim to be “all natural,” but > only those that meet certain standards are “certified organic.” It demonstrates leadership by voluntarily holding the Certification is considered a best practice. business to a higher standard of purpose, accountability, and transparency BENEFIT CORPORATION ADVANTAGES “64% of North Americans prefer to buy from Benefit corporations go beyond Corporate Social companies that give back to society” Responsibility, by legally ingraining the social and environmental mission of the company as a core business objective. Benefit corporations are required to create a material positive impact on society and the environment, and must consider the impact of their decisions not only on shareholders but all stakeholders including workers, Protect and Maintain Mission community, and the environment. They must produce an > Any decisions made must take into consideration the annual public “benefit report” that assesses their overall impact not just on shareholders, but also on workers, social and environmental performance against a third the community, and the environment (according to party standard (except in Delaware where making it public www.benefitcorp.net) is optional and it can be published every other year). In > Publicly available annual benefit reports assess the social/ addition to the obvious advantage of creating legal protection environmental performance against a third party standard, to consider other stakeholders rather than solely profit, allowing for transparency there are numerous advantages to incorporating as a benefit corporation such as: > Provides flexibility and clarity to directors and officers that their duty includes a social and environmental mission Attract Employees > Offers legal protection to directors so that they can consider > A Nielsen survey reveals that 56% of North Americans prefer the interests of their workforce, community, and the to work for a company that gives back to society environment when making decisions, even when raising > Millennials, who are 88 million strong in the US alone, capital or selling their business prefer work that connects to a larger purpose, according to > Shareholders and directors have more rights and can the Harvard Business Review therefore more easily, and legally, enforce the company’s mission Attract Investment > According to the USSIF, there is $3.7 trillion in socially LEARN MORE responsible investing assets under management, which Join the conversation, visit us on Twitter and Facebook. target companies like benefit corporations To learn more about becoming a Benefit Corporation, visit > The annual benefit report provides transparent and credible www.ctcorporation.com/benefitcorporation information for impact investors, reducing their due diligence time

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