When starting a company, founders often decide between two structures: the S-Corp and the LLC. But, as James Surowiecki writes in “Companies with Benefits,” there is a new option called the B-Corporation, the Benefit Corporation.
The Benefit Corporation became an option in 2010 when Maryland’s legislature signed it into law. Subsequently, nearly twenty states have followed suit including California and Delaware. In the past four years, more than 1,000 companies have become B-Corporations including some very well known brands in technology and consumer goods: Warby Parker, Patagonia, Seventh Generation, Method Soaps, Etsy, New Belgium Brewery, Ben & Jerry’s, among others.
In addition to maximizing shareholder value, the goal of nearly all corporations, Benefit Corporations strive to impact society and the environment in a positive way. The charter of a B-Corp dictates the board of directors must consider the best interests of the corporation and the effects of its decisions on the company’s workforce, its customers, community and societal factors, and the environment.
While many S-Corps, C-Corps and LLCs commit to social missions, the vigor with which they pursue these missions can wane. Additionally, there is no process or standard by which to judge the company’s progress. In contrast, B-Corporations cannot waver. B-Corps must elect a Benefits Director who is responsible for ensuring the social mission of the company is balanced with the financial mission. The Benefit Director must solicit an annual audit performed by a third-party. If the board fails to direct the company properly, shareholders of a B-Corporation can sue the company.
I like the idea of committing to a set of important values in the company charter, particularly for mission driven companies. Because I wasn’t familiar with B-Corps before reading Surowiecki’s post and because I haven’t worked with a B-Corp, I don’t yet know the intricacies of the structure or the challenges that may arise from it. If you’re considering a B-Corp, I suggest consulting an attorney to understand the implications in more depth.
But on the surface, the B-Corp structure seems to be a powerful way for founders to irrevocably imbue a company with a social mission. Because new directors, who may be investors or independents, must adhere to the charter, the B-Corp ensures the core company values, the same ones a business was founded to promote, become a permanent fixture of the way the company does business.