What are Benefit Corporations or “B-Corps”?

What are Benefit Corporations or “B-Corps”?

By Joshua J. Strickland, Esq.

Last month Senator Elizabeth Warren made some headlines with her op-ed piece in the Wall Street Journal regarding her introduction of what she has called the “Accountable Capitalism Act”.

This Act, if passed, would essentially require that certain corporations making $1Billion per year or more obtain a newly created “federal corporate charter.”  

Such a charter would force these high revenue companies to act similarly to how benefit corporations already act in 34 different U.S. states, albeit with some additional requirements on board member qualifications, share issuance and sales, and political spending.  

In the current political climate, this bill is probably dead on arrival, but it has raised the profile of benefit corporations or B-Corps

B-Corp Legislation in Ohio

You may have heard about C-Corps, S-Corps, and LLCs but may be mystified by B-Corps?  Not yet authorized in Ohio, these so-called “benefit corporations” or B-Corp legislation has been introduced in every state with 34 of them enacting laws that allow B-Corps even though such an effort has thus far failed in Ohio.

So what are benefit corporations anyway?  

The benefit corporation traces its roots back to the 1970’s where companies began to publically commit to making a profit while also taking actions that benefited people and the environment.  

While a for-profit business is concerned only with making money for their owners, a benefit corporation is concerned not only with making money but also providing a benefit to the community, the environment, or some other social cause.  Effectively, a benefit corporation blends a for-profit corporation’s profit motives with a nonprofit’s goal to effect a social purpose.

Currently, 34 states have enacted B-Corps with other states having pending legislation or considering such legislation.  Some notable corporations are B-Corps include Ben & Jerrys, Etsy, Patagonia, Dansko shoes, and many others.

Why Become a B-Corp?

For some, having a social purpose is the “right thing to do” whereas for others it is a savvy business decision made to attract a certain segment of customer that prefers purchasing from socially conscious businesses or attracting investors that want to invest in companies not only to turn a profit but also to do some good in their community.  

Some states require reporting on the B-Corp’s beneficial work, while others provide for voluntarily reporting or no reporting of its beneficial activities.

Notably, there does not appear to be any current special tax treatment for being a B-Corp and how a company is taxed by the IRS is not currently affected by electing a benefit corporation status.  

Also, unlike a true 501(c) non-profit corporation, a benefit corporation is not able to obtain tax-deductible donations or certain grants.

So why would someone want to have a B-Corp?

The main benefits appear to be the ability to have a stated beneficial purpose in addition to making money.

This provides flexibility to companies to invest in beneficial social causes while not abandoning making a profit and could be looked upon favorably by customers, investors, and the public giving the company a positive public image.  

While it is unlikely that Senator Warren’s bill will pass in its current form, the concept of benefit corporations has wide support and will probably eventually come to Ohio.

The information presented in this post is not legal advice and does not form a lawyer/client relationship. Laws and circumstances can differ and change.
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