Organizations are inevitably shaped by the values of the people that manage and operate them. However, it helps a great deal if the corporate structure you chose for a company makes expressing these values easier.
One of the best trends in the second half of the 20th century is the gradual realization that we as humans are the stewards of our planet. This realization bestows responsibility on all of us, especially on those with influence. Consequently, there is a definite need for a legal entity type that makes it easier for a corporation to focus not only on profit generation, but on creating public benefit through all of its actions.
What Are The Types Of Corporations In The U.S.?
Before we move onto the B Corp, here’s a short overview of the commonly used legal business entities in the US:
- Sole Proprietorship: great for one-man businesses, in a sole proprietorship there is no legal separation between the individual and the business. All income and expenses would be reported on an individual’s personal tax return.
- Limited Liability Company: the most widely used legal entity for small businesses and startups, the LLC allows a separation of the personal liabilities of the owners and the company. An LLC is also easier and cheaper to set up and operate than S and C Corps.
- S Corp: The S Corp is a bridge between an LLC and C Corp, and unlike a traditional C Corp, an S Corp doesn’t need to pay corporate income tax. At the same time, shareholders are limited to 100.
- C Corp: is the most formal type of corporate structure and is widely used by large businesses in the U.S. It requires a board of directors, pays a corporate income tax, and must issue stock (which makes it easier to trade shares in the company).
- Nonprofit: a type of corporation that donates any revenues to achieve a specific goal of public benefit.
What Is A Benefit Corporation?
It’s useful to think of a B Corp as a mix between a C Corp and a nonprofit. Unlike a nonprofit, however, a B Corp isn’t narrowly focused on a narrow public good cause and isn’t restricted on making profits. On the contrary – a B Corp is a normal business entity that aims to create value for shareholders and the public synergistically.
To be considered a B Corp, you need to pass an evaluation process in order to be certified, and you need to pay an annual fee ranging from $1k to more than $50k per year based on your annual sales.
Once certified, your company will be required to report annually using a third-party standard to show progress towards achieving social and environmental impact to its shareholders and the wider public.
Why Become A B Corp?
In that sense becoming a B Corp is relatively costly. Yet, a lot of businesses are choosing to go this route regardless.
When asked why they chose to go the B Corp route, Aja Atwood, co-founder of Trella Technologies and creator of the TrellaGro LST, a patented automated plant training robot, highlighted the additional level of company-wide accountability that helps ensure the business will remain true to its original mission as it grows and expands.
As consumers and businesses become increasingly socially conscious, they might simply choose to support and partner up exclusively with organizations that share their values. While it might seem like a shallow trend driven by virtue signaling, this doesn’t seem to be the case. If this movement truly represents the values of the new generations of businesspeople, then it is likely here to stay.