Benefit Enterprises: The Difference Between a Benefit Corporation and a B Corp

Dec. 08, 2017

You are not alone if you refer collectively to benefit entities as B Corps. Just about everyone does.  Unfortunately, a benefit corporation is not a B Corp and a B Corp is not a benefit corporation.  Here is a quick explanation as to how they differ.

According to B Lab, “a nonprofit organization dedicated to using the power of business as a force for good,” a B Corp or B Corporation is a for-profit enterprise that has been certified by B Lab as a B Corp based on an assessment that imposes rigorous standards around social and environmental impact as well as accountability and transparency.  Much like a business that has been LEED certified as a green building, a B Corp certification allows the for-profit enterprise that has been certified to hold itself out in the marketplace as a B Corp.  Nonprofit organizations cannot be certified as a B Corp.  Limited Liability Companies (LLCs), partnerships and cooperatives can be certified as a B Corp. 

A Benefit Corporation is actually a social enterprise that has been “incorporated” under a specific state law as a Benefit Corporation.  According to Benefitcorp.net (a website powered by B Lab), Benefit Corporations are “a new legal tool to create a solid foundation for long term mission alignment and value creation.  It protects mission through capital raises and leadership changes. . .”  This seems like a mouthful.  I define a Benefit Corporation or a Benefit Enterprise as a for-profit business enterprise that has committed itself legally to more than one purpose – a business purpose as well as a co-equal or superior social purpose.  A Benefit Corporation functions just like any other for-profit enterprise – it provides a good or service in exchange for payment, it pays taxes and it has stockholders or owners.  As part of these “regular” business activities, a Benefit Corporation has also committed and hopefully does some sort of social mission activity that is as least as important as making a profit for its stockholders. 

Here is an example of how a Benefit Corporation might work for a for-profit college: (https://www.minnpost.com/minnesota-blog-cabin/2015/02/are-public-benefit-corporations-new-model-profit-colleges).

As of today, 33 states have passed Benefit Corporation Legislation.  In my home state of Minnesota, our Benefit Corporation law is called the Minnesota Public Benefit Corporation Act, Chapter 304A.  As of today, only corporations (versus limited liability companies or LLCs) can elect to be a Benefit Corporation.  The option is never available for nonprofit organizations.  Benefit Corporations are taxed like any other for-profit corporation.  If an LLC wants to effectively act like a Benefit Corporation, its only option as of today is the insert a social purpose in its articles or certificate of formation that mirrors the commitment made in the articles of incorporation of a Benefit Corporation.  Unfortunately, only Benefit Corporations formed under one of the state law statutes can call themselves Benefit Corporations. 


Written By:
Kimberly Lowe

For almost 20 years Kim Lowe has lawyered from the trenches. Kim lawyers from experience, using her knowledge of the law and understanding of how both for-profit and nonprofit business enterprises operate.

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