Profit has historically been the main objective in business, but growing emphasis on social and environmental impact has reshaped governance.
The benefit corporation, while a relatively new type of entity, is legally obligated to pursue profits and social and environmental benefits.
The article explains what a benefit corporation means and why it matters, and for further context on aligning corporate purpose, see Why a Purpose Statement Matters for Your Business.
What is a Benefit Corporation?
A benefit corporation, or B Corp, is a legal framework for companies that positively impact society and the environment. Benefit corporations have a legal obligation to consider the interests of a broader range of stakeholders, including employees, customers, suppliers, the community, and the environment, in contrast to regular corporations, which are only concerned with increasing profits for shareholders. For context on aligning corporate purpose, see Why a Purpose Statement Matters for Your Business.
How Does a Benefit Corporation Work?
A benefit corporation works by legally requiring a company to consider the impact of its decisions on society and the environment in addition to generating profits. This legal requirement is the “triple bottom line” – people, planet, and profit. See Boost Your Business with Sustainability: The Top Benefits for more on this concept.
The articles of incorporation of a firm are changed when it decides to become a benefit corporation to contain language pledging the company would seek social and environmental objectives in addition to financial gains. The firm’s board of directors and officials must consider how their choices may affect all stakeholders, not just shareholders. Benefit corporations must publicly disclose their social and environmental performance, enhancing accountability and transparency. They must undergo an annual assessment to measure their social and environmental performance and report the results to stakeholders.
Advantages of Being a Benefit Corporation
Being a B Corp for the company and its stakeholders has several advantages. They include:
Improved Public Image
A benefit corporation can help improve its public image by demonstrating its commitment to social and environmental responsibility, which can attract socially conscious consumers and investors and differentiate the company from its competitors. This public commitment to social and environmental responsibility often aligns with sustainability efforts described in Boost Your Business with Sustainability: The Top Benefits.
Liability Protection
Benefit corporations are not only required to consider the impact of their decisions on their stakeholders. Still, they are legally protected from shareholder lawsuits if they prioritize their social and environmental goals over their financial performance. This protection can give companies greater flexibility to pursue their mission without fear of legal repercussions.
Increased Access to Capital
Supporting businesses that are dedicated to having a positive impact on the world piques the curiosity of many investors. Companies may set themselves apart from the competition and draw in ethical investors looking to invest in businesses that share their values by becoming benefit corporations. For practical examples of equity considerations related to this new form, see Bonus Shares: Meaning and Benefits.
Employee Attraction and Retention
A benefit corporation can attract and retain employees motivated by purpose and social impact, leading to a more engaged and committed workforce and improving the company’s performance and bottom line.
Summary
A benefit corporation means prioritizing the interests of all stakeholders, including the environment, society, and community, while pursuing financial success. Operating as a benefit company has advantages such as greater transparency, legal protection, and economic availability, but drawbacks include more stringent regulations and limited options for investors. A company’s principles, mission, and particular goals and resources should ultimately guide the decision to become a benefit corporation. If you’re evaluating whether to pursue a benefit corporation, you may also read Why a Purpose Statement Matters for Your Business.
