Benefit corporation, B-corp, public benefit corporation: not the same thing
A statutory entity form, a private certification, and the confusion that costs founders a year
Contents 4 sections
wo different things get called "B-corp" in the same sentence, and they are not the same thing. One is a legal entity form that about thirty states have now enacted. The other is a certification issued by a Pennsylvania nonprofit called B Lab. You can be either, both, or neither, and founders routinely spend money choosing one when they wanted the other.
The statutory benefit corporation arrived in Maryland in 2010. Since then the form has moved through state legislatures at a clip unusual for corporate law: Vermont, New Jersey, Virginia, Hawaii, California, New York, and Delaware, among others, with Delaware's Public Benefit Corporation taking effect in August 2013 and pulling most of the sophisticated capital into the same statutory vocabulary. B Lab certification is older than the legal form it inspired, runs on a separate assessment, and applies to any entity that can pass it — LLC, C-corp, benefit corporation, S-corp, co-op.
When the statutory form is the right call
Pick a benefit corporation when three things are true at once. The founders are committed to a mission that might, plausibly, conflict with short-term shareholder returns. You are raising, or expect to raise, from investors who either share the mission or are at least indifferent to the expanded duty structure. And you want the signaling benefit of a legal commitment that cannot be quietly abandoned in a cap-table reshuffle.
That last point is what distinguishes the statutory form from a line in a pitch deck. A Delaware PBC or a Maryland benefit corporation requires directors to consider, alongside shareholder interests, the specific public benefit named in the charter and the effects of corporate action on employees, customers, suppliers, community, and environment. Two out of three shareholders (in Delaware; thresholds vary) must approve a conversion back to a conventional C-corp. You are not painting the hallway; you are building a load-bearing wall.
Skip the form when you expect to raise a priced round from a conventional venture fund. Most institutional term sheets in 2016 do not know what to do with the expanded fiduciary regime. A fund manager who has a duty to her own LPs will not sign a term sheet that gives the company's directors a second loyalty, even a loosely defined one, and she will ask you to convert. Conversion out of PBC status is not hard in Delaware, but you pay legal fees and lose the one thing the PBC was supposed to do, which was make the commitment durable. Founders who anticipate this should form as a conventional corporation and either adopt a mission statement by contract or defer the PBC question until the cap table is set.
The other case to skip it is a one-person mission-driven consultancy. A benefit corporation with a single shareholder and a single director is mostly paperwork. An LLC with a thoughtful operating agreement does the same job with less ceremony.
Formation mechanics
Forming a benefit corporation looks like forming any other corporation, with two additions. The charter must identify a specific public benefit — not "improving the world" but something operational, like "the preservation of working farmland in the Mid-Atlantic region" or "the provision of affordable housing to low-income tenants in California." Vague is legally permissible in most states but practically useless; the specific-benefit language is what directors will be measured against later.
Second, most statutes require an annual benefit report. The report describes the ways the corporation pursued its public benefit during the year, any circumstances that hindered the pursuit, and — crucially — an assessment of performance against a third-party standard. The standard must be developed by an entity independent of the corporation, must be transparent, must be credible, and in most states must be comprehensive. Beyond those statutory requirements, the choice of standard is the corporation's.
Three standards dominate the early market. The B Impact Assessment, run by B Lab itself, is the most common and doubles as the basis for B Lab certification if the corporation wants to pursue it. The Global Reporting Initiative's framework is denser, originally built for large sustainability reports, and overkill for most new entities. Green America's standards, ISO 26000, and the MCA (Mission Commitment Assessment) each claim a share. Picking one is less important than sticking with it year over year; the report's informational value comes from the trendline, not the absolute score.
Delaware's PBC differs in a few ways worth naming. It requires a biennial statement to shareholders rather than an annual public report, and the third-party standard is permissible rather than required. The lower reporting burden is one reason Delaware has absorbed most of the venture-backed mission-driven formations; the tradeoff is less public accountability, which is the point of the form for some founders and a defect of it for others.
B Lab certification is a different thing
B Lab is a nonprofit based in Berwyn, Pennsylvania. It certifies companies — of any legal form — that score at least 80 points on its B Impact Assessment and recertify every three years. The certification is a trademark. It is not a legal status. A Vermont LLC with strong environmental practices can be a Certified B Corporation without ever amending its operating agreement. A Delaware PBC with mediocre practices can fail the B Lab assessment and not be certified.
The overlap is real but partial. B Lab requires its certified corporations to adopt legal language that commits them to consider stakeholder interests; in states that have benefit-corporation statutes, B Lab requires its certified corporations to use the statutory form within a set period. So the two regimes are converging in practice even though they remain distinct in law.
Founders who want the marketing benefit of "B-corp" status but do not want the legal machinery should pursue B Lab certification and leave the entity alone. Founders who want the legal commitment without the certification process — because the assessment is expensive, or because they want to use a different third-party standard, or because they don't want to be audited by B Lab — should form as a benefit corporation and not apply.
Where the form does not hold up
The benefit corporation is too new to have generated much litigation, and the cases that do exist are mostly about conversions, not about director conduct. What has not yet been tested is the hard case: a benefit corporation whose directors approve a sale to an acquirer hostile to the specified public benefit, over the objection of a shareholder faction that bought in for the mission. The statutes give directors discretion to weigh the public benefit against shareholder returns; they do not tell directors how much weight to give. A court will have to decide, and the decision will matter.
The other unresolved question is taxes. Benefit corporations are taxed like ordinary corporations — C-corp by default, S-corp by election if they qualify. There is no federal tax break for forming one. States have not offered one either, with narrow exceptions. Founders who expect the form to reduce their tax bill are misreading it; the form is a governance choice, not a tax choice.
If you are forming this fall and the mission is central to the company's identity, the Delaware PBC is the default choice for anyone who expects to raise capital, and the home-state benefit corporation is the default for anyone who does not. Either is a stronger signal than a line in a pitch deck and a weaker constraint than a nonprofit charter. That middle position is the whole point of the form, and whether it holds up depends on cases that have not yet been brought.