Benefit Corporations - B Lab U.S. & Canada

What Is a Benefit Corporation?

A benefit corporation is a legal tool to create a solid foundation for long term mission alignment and value creation. It protects company missions through capital raises and leadership changes. Benefit corporation structure creates more flexibility when evaluating potential sale and liquidity options. It prepares businesses to lead a mission-driven life post-IPO (initial public offering).

Due to law and culture, directors of traditional for-profit companies must maximize the financial returns to shareholders. This single focus is called shareholder primacy. This inflexible legal framework does not accommodate for-profit entities whose mission and impact is central to their business model.

Benefit corporation status allows corporations to opt-out of shareholder primacy and opt-into stakeholder governance. With stakeholder governance, a company is required to take into consideration anyone that is materially affected by that company’s decision-making, like workers, customers, local communities, wider society and the environment.

A benefit corporation is a traditional corporation with modified obligations, committing it to higher standards of purpose, accountability and transparency:

1. Purpose: To create general public benefit. This is defined either as a material positive impact on society and the environment, or as the obligation to operate in a responsible and sustainable manner depending on the state/ province of incorporation.
2. Accountability: Benefit corporations expand the obligations of boards. A board must consider the environmental and social factors, as well as the financial interests of shareholders. This gives directors and officers the legal protection to pursue a mission and consider the impact their business has on society and the environment.
3. Transparency: Benefit corporations must report on their progress to achieve general public benefit. Reporting requirements differ by state/ province, but many are required to use a third party standard to measure their performance and annually report to the public.

For more in-depth discussion of benefit corporations and the legal justifications and the implications for adoption check out the following sources:

• Benefit Corporation Law and Governance: Includes a history and overview of the form as well as analysis of the different laws.
• The Need and Rationale for the Benefit Corporation: Why it is a legal Form that Best Addresses the Needs of Social Entrepreneurs, Investors and Ultimately, the Public: 2013 White Paper that outlines the legal justification for the benefit corporation legislation and discusses the intent behind the legislation.
• Board Playbook: This is the most practical guide to date for companies to adopt Delaware Public Benefit Corporation.