The Advent of the “B-Corp”

RACHAEL K. WILLIAMS — B-Corp stands for “Benefit Corporation,” a new class of corporation with unique, specific criteria. B-Corps are “required to create a material positive impact on society and the environment and to meet higher standards of accountability and transparency.”  In addition to positive societal and environmental impact requirements, B-corp classification also places additional fiduciary responsibilities upon stakeholders by requiring “consideration of non-financial interests when making decisions” and “reports on [the corporation’s] overall social and environmental performance using recognized party standards.”

Although each state of incorporation may form its own recognized third party standards through legislation, the Model Legislation provides guidance that the standards assess the interest of the corporation’s employees and its subsidiaries, of the corporation’s consumers, the local community and society, and the local and global environment. However, the Model Legislation requires that the developed third party requirements are comprehensive, formed by an entity independent of the corporation, developed by an entity with expertise regarding social and environmental performance, and is transparent and publicly available.

Under the B-corp classification, only shareholders and directors of the corporation have a right of action regarding any legal dispute as to whether the corporation is fulfilling its societal and environmental impact requirements. There is no third party right of action, and right of action applies in two cases: “1) violation of or failure to pursue or create general or specific public benefit” and “2) violation of a duty or standard of conduct.”

Currently, B-corps do not receive any tax, investment, or procurement incentives. Corporations may voluntarily choose to be held to “higher standards of corporate purpose, accountability, and transparency” characteristic of B-corp classification. However, in the future lawmakers and the general public may choose to implement legislation to provide for preferential treatment for B-corps if deemed appropriate.

Currently, twenty states have enacted legislation allowing businesses to apply for B-corp status. Many other states currently have benefit corp legislation pending.

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