This month, we’re reprising a guide on B Corps. These FAQs would not have been possible without the input & legal guidance offered by Kevin Christopher of Rockridge Venture Law®. Kevin Christopher is founder and principal of Chattanooga-based Rockridge Venture Law®, a 2018 and 2019 Best For The World B Corp. Kevin’s practice areas include corporate, patent and trademark law. Kevin has been recognized as a SuperLawyer by Thomson Reuters and Top Business Leader by Conscious Company Magazine. Read more about Kevin, connect with him, and Calendly him.
Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy. Check out these resources if you’re interested in digging deeper: B Corp FAQs, Aggregated research about B Corps + recorded videos, and Better Business: How the B Corp Movement is Remaking Capitalism
Through the tireless efforts of Profitable Purpose Consulting, B Local Georgia, Partnership for Inclusive Innovation, and many, many others, Georgia has a growing B Corp community. Currently, there are 35 B Corps located across Georgia. Check out B Local Georgia’s directory below to see more about these impactful companies!
Becoming a B Corp
First, it is important to note that there is a clear distinction between B Corps and benefit corporations. See below for more information about this distinction. Any company incorporated in any state can become B Corp certified, but only 35 states have legislation to become a benefit corporation. Georgia benefit corporation legislation became effective January 1, 2021.
- To become a B Corp: To become a certified B Corp, please use the Legal Requirement Tool to determine the steps needed to amend your corporate bylaws.
- To become a benefit corporation: Companies in Georgia will have the opportunity to incorporate as a benefit corporation beginning January 1st, 2021.
What’s the difference between a B Corp & a benefit corporation?
- From bcorporation.net: “Benefit corporations and Certified B Corporations are often confused. The B Corp Certification is a third-party certification administered by the non-profit B Lab, based in part on a company’s verified performance on the B Impact Assessment. The benefit corporation is a legal structure for a business, like an LLC or a corporation. Benefit corporations are legally empowered to pursue positive stakeholder impact alongside profit. Some companies are both Certified B Corporations and benefit corporations, and the benefit corporation structure fulfills the legal accountability requirement of B Corp Certification.”
- From Kevin Chrisopher at Rockridge Venture Law: “A Benefit Corporation is a formal type of business entity structure, like an LLC, C-Corp, or S-Corp. Essentially, a Benefit Corporation is a C-Corp with certain statutory distinctions that impact how it is operated, as well as the rights and responsibilities of its directors, managers, and shareholders.”
What are the implications of these differences?
Theoretically, a Benefit Corporation may be thought of as a legal framework to best promote corporate social responsibility. Over the past few decades, U.S. corporate law has trended towards something lawyers ominously refer to as the Doctrine of Shareholder Primacy. It basically means that shareholders – often in the form of large institutional hedge funds, pension funds, or venture capitalists – can pressure companies’ managers into maximizing monetary return to shareholders over competing considerations like environmental and social impact. For example, a company could be prevented from rolling out a novel paternity leave program for its employees, or prioritizing sustainability in its supply chain, if by doing so the company were to minimize shareholder dividends. By organizing and operating as a Benefit Corporation, a company can shield its management activities from shareholder pressures; effectively, Benefit Corporation status puts the force of law behind the idea that a company can and will consider people and planet as worthy metrics of success alongside profit.
Practically, a company might choose to launch or restructure as a Benefit Corporation if:
- Its founders are mission-oriented and don’t wish to risk this motivation for doing business (e.g. selling one unit of product, giving one unit to a population in need);
- Its management sees an audience specific advantage to being recognized as embodying corporate social responsibility principles (e.g. a company competing with nonprofits in selling goods or services to Government); or,
- Its management wishes to justify certain atypical expenditures that are tied more towards its mission than its industry (e.g. a law firm buying kayaks to steward a local river the firm has adopted).
Since corporate law is governed by state law, all of this begins with the adoption of Benefit Corporation legislation at the state level. See the call-out box below for more of a breakdown.
Will I need to change my company’s legal structure to become a B Corp? How can I do so?
According tobcorporation.net, “All Certified B Corps must meet a legal accountability requirement to maintain Certification. Your company’s legal requirement will vary based on your location and structure. Find your specific requirement using our Legal Requirement tool.”
Who is eligible? Can startups with less than one year in business become B Corps?
According to bcorporation.net,
- “Any for-profit company with at least a year of operations may pursue B Corp Certification. There is no minimum or maximum size. Certain companies, such as those under a year old, those with related entities, or large multinational and public companies, have additional considerations and requirements.”
- “B Corp Certification is based in part on a company’s verified performance on the B Impact Assessment, which asks questions about a company’s past fiscal year. This means that companies with less than one year of operations are not yet eligible for B Corp Certification. Instead, they may pursue Pending B Corp status, designed to set a start-up on the path to full Certification.”
Does becoming a B Corp cost money?
According to bcorporation.net, “Certified B Corporations pay an annual certification fee, which licenses them to use intellectual property like the Certified B Corp logo. This fee starts as low as $1000 and scales with revenue. You can see the full pricing schedule on the Certification page. Access to the B Impact Assessment is free. Your company may also be subject to additional costs depending on size and structure.”
How long does it take to become B Corp certified?
According to bcorporation.net, “The length of the certification process varies based on a company’s size and complexity. Completing the B Impact Assessment requires a minimum of several hours. The verification process to finalize a company’s score typically takes from several weeks to a few months. Large multinationals or companies with many related entities should expect a longer process.”
Are all benefit corporation statutes the same?
According to Kevin Christopher at Rockridge Venture Law, “No. I like to think of Benefit Corporation statutes along a gradient, ranging from B Lab’s Model Benefit Corporation Legislation to many southeastern states’ Ugly Duckling Social Purpose Legislation. (Some states even go above and beyond the B Lab standard to what may be considered Supermodel status).”
Here’s a snapshot of a few select attributes to show how these statutes might differ:
| Model | Social Purpose | |
|---|---|---|
| Standards of Conduct | Directors are obligated to weigh the impact their actions or inactions upon all specifically named stakeholders (employees, shareholders, community, environment, long-term corporate interests) | Directors are vaguely required to balance stated benefits with interests of shareholders and can’t give “regular, presumptive, or permanent priority” to shareholders (Tennessee) Directors must vaguely balance the interests of shareholders, stakeholders, and the stated benefit (Kentucky) Directors must only consider the stated public benefit in decision making (Georgia) |
| Definition of Public Benefit | General public benefit inclusive of environmental and social impact accounting + optional specific benefit such as providing low-income or underserved communities with beneficial products or services | Positive effect or reduction of negative effects on any category of person or interest other than stockholders, e.g. charitable, religious, technological (Georgia, Kentucky, Tennessee) |
| How is Demonstration Met? | Annual, publicly posted benefit report measuring general and specific benefits validated by independent third party and supported by financial statements | No statutory requirement for audit or validation (Tennessee) No statutory requirement for audit, validation, or online posting (Georgia) Directors must vaguely adopt a standard by which to measure performance in pursuit of the stated benefit (Georgia) |
| Rights Available to Stakeholders Wishing to Challenge Satisfaction of Public Benefit | Benefit enforcement proceeding requiring public posting of its third-party audit Derivative suit available to 2% shareholders | Derivative suit available to 2% shareholders (Kentucky, Tennessee) |
| Rights Available to Investors to Contest | Shareholders must ratify by 2/3 vote amendment of corporation to become a benefit corporation | Shareholders must ratify by 90% of voting and nonvoting shares of each class of stock to convert from corp to benefit corp, but only 2/3 approval needed to convert or merge from benefit corp to corp (Kentucky) Shareholders must ratify by 2/3 vote amendment of corporation to become a benefit corporation (Georgia, Tennessee) Shareholders may dissent from benefit corp conversion and demand fair market purchase (Georgia, Kentucky, Tennessee) |
Comparing Georgia to Peers
Georgia enacted House Bill 230 / Act 487 on July 29, 2020. Interestingly, while receiving overwhelming support in the House (165:2), the law received less fanfare in the Senate (32:19). This is surprising since, as outlined below, the law is relatively anemic in key areas.
Defining Benefit
In the most robust form, legislation would require Benefit Corporations to prioritize and demonstrate ongoing commitment to community, employees, environment, and shareholders (i.e., all stakeholders). In lighter forms, legislation might only require commitment to a certain cause or population (e.g., religious group) (§ 14-2-1802(2)). Georgia has adopted the watered-down version of benefit, meaning that a Georgia Benefit Corporation could presumably qualify for recognition by invoking an affinity for high school football (educational and charitable benefits are statutory examples). Lacking constraints around what qualifies as public benefit above all else renders Georgia’s benefit corporation legislation, if not meaningless, at least disconnected from shareholder primacy and the triple bottom line (people, planet, profit) theme of legislation elsewhere around the country.
Defining Director Conduct
A Georgia Benefit Corporation director must only consider the company’s stated benefit in its decision making (§ 14-2-1806(a)(2)). This is bad news for social entrepreneurs. Let’s say three co-founders of a social enterprise featuring a 1:1 model supporting a stated public benefit (sell one article of goods, give one to a community in need) take on early investors resulting in a board of the three founders, three investors, and one neutral advisor. Depending on board powers, it is possible that the board on majority vote could decide to eliminate the 1:1 model by merely “considering” the stated benefit against its desire to improve shareholder return. Georgia companies cannot rely on the statute to protect their stated benefits, but must further incorporate protective measures into their charters, bylaws, and shareholder agreements permissible under the law.
Measuring Performance
Ideally, a Georgia Benefit Corporation would choose an auditing standard like B Lab’s B Corp certification and proactively publish annual reviews on its website. However, the statute does not require that, and because the definition of benefit can be so arbitrary and narrowly defined, there is little incentive for a Georgia company to do so. Going back to my earlier example, a Georgia Benefit Corporation invoking a high school football team as its public benefit could internally measure its performance in pursuit of the public benefit according to booster club involvement or games won.