B Corporations and Benefit Corporations: Companies on a Social Mission - ABA YLD 101 Practice Series

By Erika Lucas

Corporate social responsibility has become an increasingly important aspect of many companies’ business models.  By embracing corporate social responsibility, a company makes the needs and desires of not only its shareholders but also its “stakeholders” - including the employees, the consumers, the residents of communities and governments where that company acts - part of its business plan. 1  Recently, some companies have gone beyond their own self-regulated corporate social responsibility plans and have taken steps to certify to the public that they focus on either a double-bottom-line (measuring not only their financial performance, but also their positive social impact) or triple-bottom-line (measuring their financial performance, positive social impact, and positive environmental impact) by becoming “B Corporations.”

B Corporations (the “B” stands for “Benefit”) are companies that qualify as for-profit social enterprises under a set of defined performance standards. 2  These standards have been created by B Lab, a non-profit organization whose mission is “to create a new sector of the economy which uses the power of business to solve social and environmental problems.” 3  B Lab states that its primary initiatives include:  “building a community of Certified B Corporations to make it easier for all of us to tell the difference between ‘good companies’ and just good marketing” and “advancing supportive public policies, including creation of a new corporate form…and incentives for sustainable business...” 4

Granting B Corporation status to a company is B Lab’s means for certifying to the public that the company is socially-minded and meets B Lab’s business standards. However, B Corporations are not alternative corporate forms and must be either a C or S corporation.  To become a B Corporation, a company must first take the B Impact Assessment, through which B Lab assesses the company’s impact on its stakeholders.  Such assessment is not the same for all companies and depends on the company’s size and sector.  After achieving a passing score on B Lab’s B Ratings System, a company may become a B Corporation.  Such company may then amend its governing documents to require that the company consider its stakeholders when making corporate decisions.

Obtaining B Corporation status and amending governing documents to reflect such status does not automatically mean that a company may legally consider stakeholders in its corporate decision making process.  Corporate directors must make decisions consistent with their fiduciary duties, which traditionally have required directors to make decisions based on shareholder profit, not stakeholders or any broader social mission of the company.  Thus, B Lab relies on “constituency statutes” to provide B Corporations with the legal ability to consider its stakeholders.Constituency statutes, which gained popularity in the 1980s, codify the right and/or obligation of directors of a company to consider the interests of stakeholders other than shareholders when making business decisions. 5  Companies incorporated in states with no constituency statute risk a shareholder derivative suit if it becomes a B Corporation.  In addition, any provision in a company’s governing documents which is inconsistent with the laws of the state where that company is incorporated is unenforceable.

Even in states that have a constituency statutes, many followers of B Corporations worry about how that state’s constituency statute might be interpreted to apply to a B Corporation by the courts. 6  In response to this concern, two states have adopted benefit corporation statutes modeled on B Lab’s vision.  Maryland was the first state to pass such legislation in April of 2010 and Vermont followed soon after, passing its benefit corporation law in May of 2010.  By adopting benefit corporation statutes, B Corporations (and those companies who wish be “benefit corporations” pursuant to these new statutes) who are incorporated in Maryland and Vermont, do not need to worry about whether or not those States have constituency statutes or how a court might interpret such constituency statutes in the context of B Corporations.  Instead, such company merely needs to elect to become a benefit corporation by making such election in its articles of incorporation and following the law with regard to benefit corporations in those States. 7  For example, both the Maryland and the Vermont statutes require that benefit corporations have the purpose of creating public benefit, defined as a material positive impact on society and the environment, as measured by a third-party standard, defined as a transparent measurement taken by a person or entity that is independent of the benefit corporation. 8 

Corporate social responsibility is popular among companies and the stakeholders of companies – including their clients, employees and communities.  Obtaining B Corporation status is a great way for companies with strong social missions to certify to their stakeholders that they act with a view toward a double or triple bottom line.  Certainly, any company interested in becoming a B Corporation should consider incorporating in Maryland or Vermont in order to take advantage of their benefit corporation statutes, however B Corporations may be set up in any number of states.  Further, benefit corporation statutes are relatively young and time will tell if other states adopt similar statutes to make it less risky for socially minded companies to continue their missions.

1 See Thomas Kelley, Law and Choice of Entity on the Social Enterprise Frontier, 84 Tul. L. Rev. 337, 349 (2009-2010) (noting that corporate social responsibility is distinguished from corporate philanthropy in that it will consider the interests of stakeholders even if such consideration negatively affects financial performance).
2 See Introducing the B Corporation, available at http://www.bcorporation.net/resources/bcorp/documents /2009%20B%20Corp_Intro_Package.pdf (certified B Corporations must: “(1) meet transparent and comprehensive standards of social and environmental performance; (2) legally expand their corporate responsibilities to include consideration of stakeholder interests; and (3) amplify the voice of sustainable business and for-profit social enterprise through the power of the unifying B Corporation brand.”).
3 See Why B Corps Matter, available at http://www.bcorporation.net/why.
4 See Who Certifies?, available at http://www.bcorporation.net/index.cfm/fuseaction/content.page/nodeID/ 08c9dc4d-6064-48cb-af04-4fd9d4ced055/; See also Andrew Kassoy, Benefit Corporations exist in Maryland, available at http://blog.bcorporation.net/2010/04/benefit-corporations-exist-in-maryland/ (noting that in its pursuit to create incentives for sustainable business, the first tax incentive for B Corporations was passed in Philadelphia in December, 2009).
5 See Celia R. Taylor, Carpe Crisis:  Capitalizing on the Breakdown of Capitalism to Consider the Creation of Social Businesses, 54 N.Y. L. Sch. L. Rev. 743, 750 (2009-2010) (stating that constituency statutes remain the law in at least 31 states, but that Delaware has not enacted such a statute and discussing the inception of such statutes which gained popularity as mergers and acquisitions increased because they helped a target entity to fend off hostile takeovers by allowing directors to consider factors other than its shareholders’ desires to benefit from the transaction).
6 See Id. at 760-61 (Posing questions such as “whether the suggested language in a B corporation’s articles of incorporation would provide it any legal protection if the corporation and its directors were sued for putting non-investor stakeholder interests ahead of, or even on par with, shareholder interests,” whether a B Corporation will “create only contractual duties running from directors to stakeholders while leaving traditional fiduciary duties unaffected” and whether “incorporation in a jurisdiction that allows directors to consider non-investor stakeholder interests [will] legally protect a B corporation’s business decisions in a jurisdiction that does not recognize non-investor interests as legitimate business considerations”).
7 Vt. Stat. Ann. tit. 11A, § 21.03(a)(1); Md. Cod Ann., Corps. & Ass’ns, § 5-6C-03.
8 Vt. Stat. Ann. tit. 11A, §§ 21.08; 21.03(a)(4), (a)(8); Md. Cod Ann., Corps. & Ass’ns, §§ 5-6C-06; 5-6C-01(c), (e).


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About the Author

Erika L. Lucas is a corporate associate in the Miami office of Baker & McKenzie LLP.  She may be reached at erika.lucas@bakermckenzie.com with questions or comments regarding this article.

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