Benefit corporations have a mission beyond making a profit.
A benefit corporation is a business entity with a dual purpose: making a profit and promoting the public good. While a for-profit corporation's sole purpose is to make a profit for its shareholders, and a nonprofit's purpose is to fulfill its mission or support its beneficiaries (such as promoting environmental sustainability or serving low-income individuals), a benefit corporation engages in both. Directors of benefit corporations must report to their shareholders (and in some states to the public) on how they are fulfilling their public benefit purpose.
Before you decide to form a benefit corporation, check with your state's laws. Not every state recognizes benefit corporations, and some require additional paperwork and annual reports. If the benefit corporation entity is available, you can form a new benefit corporation from scratch; and if you already have a for-profit corporation, you can convert it with the approval of your shareholders.
Comparing Benefit Corporations to For-Profit Corporations
In many ways, benefit corporations are similar to for-profit corporations. In both, the shareholders are the owners and the board of directors oversee the direction of the business. Both entities pay corporate income tax and file the same annual tax returns. As discussed below, the process for forming a benefit corporation is similar to a for-profit corporation.
Benefit corporations are different from for-profit corporations in terms of their purpose. In the former, the business's sole purpose is to make a profit. The directors are legally required to put the interests of the stockholders first, which means making decisions that maximize profits (within the bounds of the law and fair dealing). In a benefit corporation, although one of the business's purposes is to make a profit, it has a second purpose that serves the public.
Here's an example. Let's say you own a furniture company and you have the option to use recycled materials in manufacturing your sofas. If you have a for-profit corporation and the board of directors finds that using recycled materials means less profit, the board would have to vote against it because it would not be in the best interests of the shareholders. By contrast, if your company is a benefit corporation and one of your purposes is environmental sustainability, the board could recommend the use of recycled materials, even if it hurts the bottom line.
To help it make decisions, the board can create policies on how it will balance the sometimes competing interests of profits and the public good. For instance, the organization might set aside 5% of sales to contribute to a charitable cause, or set a goal of using 50% recycled materials in its products. Once the business meets the stated goals, the board will make decisions that maximize profits.
Qualifications for Benefit Corporations
To qualify as a benefit corporation, your company must have a public benefit purpose and commit to creating annual reports that show your progress towards your stated mission. Your formation documents must include a statement of one or more public benefit purposes, such as:
- serving low-income individuals or communities
- environmental sustainability
- promotion of arts or music
- sharing profits with charities
- contributions to scientific research
- advancement of public education, or
- a general public benefit purpose (such as a positive impact on society).
Many states require benefit corporations to produce annual reports on their overall social and environmental performance. The report must be available to the corporation's shareholders, and in some states, to the public.
Advantages Benefit Corporations
Some of the advantages you will enjoy if you form a benefit corporation include:
- Furthering the public good: The main reason to form a benefit corporation is to further a public benefit that is meaningful to you and to help ensure that your mission lives on after you and other owners leave the corporation.
- Taking home a profit: In a benefit corporation, the company distributes profits to its shareholders. By contrast, if you form a nonprofit corporation, you cannot distribute profits to the owners (apart from reasonable salaries).
- Attracting customers and employees: Benefit corporations can attract devoted customers and employees, who are drawn to the corporation's mission.
- Other benefits of traditional corporations: Benefit corporations enjoy the perks of traditional corporations, such as limited liability and tax deductions.
Disadvantages of Benefit Corporations
A benefit corporation is not the best choice for every business. Some of the disadvantages you should consider include:
- Not available in every state: Not every state recognizes benefit corporations. If you cannot form a benefit corporation in your home state, you can explore out-of-state registration. Consult with an attorney to determine if this option is available for your business.
- Not available for every business: Not every type of business can register as a benefit corporation. For example, if you own a professional business, such as a law firm or an accounting firm, you likely cannot form a benefit corporation (you can instead form a professional corporation).
- Less profit: In some cases, promoting the public good means less profit for your shareholders.
- More formalities and paperwork: Compared to other entities like LLCs and partnerships, benefit corporations are more challenging to form and maintain. You must maintain a board of directors, submit state filings, and produce annual reports.
How to Form a Benefit Corporation
The process for forming a benefit corporation is similar to creating a for-profit corporation. The steps include:
- Select a business name.
- Form a board of directors.
- File articles of incorporation (also known as a certificate of formation) with the state and pay a filing fee. Your formation documents must specify that you are forming a benefit corporation.
- Draft bylaws.
- Apply for business licenses.
- Register with tax agencies.
View our articles on corporations for more information on forming a corporation in your state.
Converting an Existing Business to a Benefit Corporation
If you own a for-profit corporation and your state recognizes benefit corporations, you can convert the business. Typically, you must gain approval from your shareholders and board of directors. You will then file amended articles of incorporation with your state and pay a filing fee. Converting to a benefit corporation is more complicated when you own a nonprofit corporation, LLC, or other business type. Consult with an attorney in your state for more information.
FAQs
A Benefit Corporation is a corporate form designed for for-profit entities that want to consider society and the environment in addition to profit in their decision making process. Benefit corporations are different from traditional corporations in regards to their purpose, accountability and transparency.
What is the meaning of benefit corporation? ›
A Benefit Corporation is a corporate form designed for for-profit entities that want to consider society and the environment in addition to profit in their decision making process. Benefit corporations are different from traditional corporations in regards to their purpose, accountability and transparency.
How does benefit corporation work? ›
A for-benefit corporation has the same structure as a traditional for-profit corporation. Each has a board of directors, officers, and shareholders who own shares in the company. The officers and directors run the business, yet the shareholders can hold them accountable for the decisions they make.
How is a benefit corporation different from a corporation? ›
Unlike a traditional corporation, a Benefit Corporation is a for-profit corporate entity type that is not solely profit-driven. A Benefit Corporation must have a beneficial social or environmental purpose and meet increased levels of accountability and transparency.
Is benefit corporation the same as B Corp? ›
These terms are often used interchangeably, without taking their remarkable differences into consideration. While the term "B Corp" refers to a third-party certification, "Benefit Corporation" refers to an actual legal business structure.
Why would a company want to be a benefit corporation? ›
Benefit Corporations afford legal protection to companies that prioritize social and environmental values over shareholder returns. In other words, Benefit Corporation status allows directors and officers to balance financial and nonfinancial interests when making business decisions.
What are the disadvantages of being a benefit corporation? ›
Disadvantages: There are annual administrative and legal costs associated with obtaining and maintaining B certification. There also may be a heightened level of scrutiny from activists and shareholders, who may be hypercritical when assessing the organization.
Who owns a benefit corporation? ›
There are no owners or shareholders in a non-profit company. A benefit corporation, however, does have shareholders who own the company. A traditional non-profit (or not-for-profit) company aims to serve a public benefit without making a profit, as defined by the IRS.
How is a benefit corporation different from a nonprofit? ›
A benefit corporation can distribute its profits to its shareholders in the form of dividends. A non-profit corporation has to use its profits to further its charitable purpose.
Are there tax benefits to being a benefit corporation? ›
Benefit corporations are not tax-exempt, like non-profits, because they are still for-profit entities. A benefit corporation will still be taxed as an S or C Corp, or alternative pass-through entity where applicable.
A benefit corporation is a legal structure that embeds stakeholder governance into a business' DNA, ensuring the business considers its impact on all of its stakeholders. Importantly, the benefit corporation structure is not a certification and benefit corporations are not required to meet B Lab's standards.
What is an example of a public benefit corporation? ›
Some examples of government-provided public benefit corporations include transit systems, public libraries, and hospitals.
How many states have benefit corporations? ›
In the United States, a benefit corporation or B corporation (or in several jurisdictions including Delaware, a public-benefit corporation or PBC) is a type of for-profit corporate entity, authorized by 36 U.S. states and the District of Columbia, that includes positive impact on society, workers, the community and the ...
Which states allow benefit corporations? ›
The following states, including the District of Columbia, legally acknowledge some aberration of benefit corporations:
- West Virginia.
- Washington state - referred to as a "social benefit corporation."
- Virginia.
- Vermont.
- Utah.
- Tennessee.
- South Carolina.
- Rhode Island.
There are currently over 6000 Certified B Corporations in more than 80 countries and over 150 industries. Head to our homepage to see the latest statistics about the B Corp Movement. Not what you're looking for? Visit our Knowledge Base for more information and resources about B Lab, our tools, programs, and more.
Why become a PBC? ›
Accountability and transparency.
Due to factors such as its public benefit purpose and legislated reporting requirements, a PBC provides the socially conscious investor or consumer with an enhanced level of accountability and transparency, which often adds to its overall appeal.
Do B Corps get tax breaks? ›
Disadvantages of B Corporations
These corporations have no tax benefits over traditional businesses. Unlike LLCs and S Corps, B Corps are scrutinized for their policies and practices to ensure they uphold their ethical standards.
What is the main goal of a benefit social corporation? ›
A Benefit Corporation is required to be formed for the purpose of creating general public benefit. This means that a Benefit Corporation must operate as a triple-bottom line business by considering its impact on the community and the environment, taken as a whole, along with generating profits for its shareholders.
What is the advantage of a benefit corporation in a legal sense? ›
An advantage of benefit corporation legislation is that it allows the entity more freedom to provide a benefit to society by not being required to have a single goal of maximizing the profit of its shareholders.
Is B Corp certification worth it? ›
Businesses that successfully integrate their B Corp certification into the company's DNA are more purposeful and profitable. Research has shown this to be true. B Corp certification helps companies consider their stakeholders in all business decisions while also pursuing the traditional business goal of making profit.
B Corp Certification is a designation that a business is meeting high standards of verified performance, accountability, and transparency on factors from employee benefits and charitable giving to supply chain practices and input materials.
What are benefit owner responsibilities? ›
The benefits owner is generally a senior business/operations manager who has the authority to make decisions and can resolve risks impacting the benefit. The benefits owner would normally be the primary recipient supporting the beneficiary of the benefit.
Can a public benefit corporation go public? ›
Benefit corporations can go public. The benefit corporation category was implemented as a way to protect company missions when going public.
Is Ben and Jerry's a B Corp? ›
We are a certified B Corporation, which is recognized as the highest standard for social corporate responsibility.
What companies are PBC? ›
Current publicly traded Benefit Corps in the US are:
- Vital Farms (recent IPO of PBC)
- Lemonade Insurance (recent IPO of PBC)
- Veeva Systems (January 2021) - public company that made charter amendment to become benefit corp.
What is a PBC company? Public Benefit Corporations (PBCs) are corporate entities that are legally structured to take into account the interests of social good in addition to maximizing shareholder value. In short, a PBC structure allows businesses to focus on both profits and benefits for society.
Are profit and benefit the same? ›
Meaning of Profit:
Otherwise called net income, the benefit or profit is the leftover income of the firm after the costs are deducted from it.
Do benefit corporations respect human rights? ›
In principle, therefore, both benefit corporations and certified B Corps are obliged to take human rights into consideration, not because doing so will increase profits, but because of their explicit mission to take stakeholder interests into account—and that can- not exclude their human rights.
Can a benefit corporation be an S Corp? ›
If the corporation meets the requirements to be an S Corporation, which include restrictions on the type of shareholders and the one class of stock requirement, a Benefit Corporation can elect to be taxed as an S Corporation.
Are B Corps taxed the same as C Corps? ›
A benefit corporation, sometimes called a B corp, is a for-profit corporation recognized by a majority of U.S. states. B corps are different from C corps in purpose, accountability, and transparency, but aren't different in how they're taxed.
Etsy is no longer a B Corp. The firm was part of a unique cohort of companies that became certified B Corps before benefit corporation legislation existed. After that legislation came in, all B Corps were required to incorporate as benefit corporations.
What are the advantages and disadvantages of a firm incorporating as a benefit corporation? ›
Advantages of a corporation include personal liability protection, business security and continuity, and easier access to capital. Disadvantages of a corporation include it being time-consuming and subject to double taxation, as well as having rigid formalities and protocols to follow.
How many public benefit corporations are there in the US? ›
There are now over 3,000 benefit corporations in the US alone. Benefit corporation legal structure is separate from a company's tax status, and does not come with tax incentives or other tax implications.
How do you become a benefit corporation? ›
To register as a benefit corporation, you must file the Articles of Incorporation with the Secretary of State, along with the prescribed filing fees. As of now, you can form a benefit corporation in 27 states. However, more states are likely to enact the statute for benefit corporations in the coming years.
What is the difference between a public benefit corporation and AB Corp? ›
Myth #1 – B Corp and Public Benefit Corporation (PBCs) are the same thing. Wrong. A B Corp is a certification provided to eligible companies by the nonprofit, BLabs. A Public Benefit Corporation is an actual legal entity that bakes into its Certificate of Incorporation a “public benefit”.
What state has the most B Corps? ›
The U.S. States With the Most B Corporations
California took the top spot as the state with the most B Corporations overall, at 320 total certified businesses. California is home to a multitude of companies that are doing their part to remain environmentally conscious and ethically sourced.
What is the difference between a benefit corporation and an LLC? ›
Both protect company owners from personal liability for business obligations. In general, corporations have a more standardized and rigid operating structure and more reporting and recordkeeping requirements than LLCs. LLC owners have greater flexibility in how they run their business.
What is a Public Benefit Corporation in the US? ›
A non-charitable corporation will be considered a Public Benefit Corporation if it receives more than $10,000 annually in the form of donations/gifts from persons who are not members, directors, officers or employees of the corporation, or in the form of government grants or financial assistance.
What is the best state to form as Corp? ›
Top 3 states for forming an S corporation
- Delaware. Many big Fortune 500 companies are incorporated in Delaware even though their headquarters are located in other states. ...
- Nevada. Nevada is considered a business-friendly state. ...
- Wyoming. ...
- South Dakota. ...
- Alaska. ...
- Florida. ...
- New Jersey. ...
- California.
Benefit corporations are not tax-exempt, like non-profits, because they are still for-profit entities. A benefit corporation will still be taxed as an S or C Corp, or alternative pass-through entity where applicable.
