A B Corp is a company that has earned B Corp certification from B Lab, a private nonprofit, by meeting its social and environmental standards. A benefit corporation is something different: a legal entity type created by state law, available in California and Delaware, that requires directors to consider stakeholders as well as shareholders. Certification alone will not change the world, but the right combination of legal structure and certification can lock a mission into a company’s governance.
Founders who want their companies to do good often hear “B Corp,” “benefit corporation,” “public benefit corporation” and “social purpose corporation” used interchangeably. They are not the same, and the differences matter when you form the company, raise money or sell it. Here is how the pieces fit together.
B Corp Certification vs. Benefit Corporation
- B Corp certification is a private, third-party standard administered by B Lab. It is a brand and a set of performance requirements, not a type of legal entity. A company of almost any structure, including an ordinary corporation or an LLC, can pursue it.
- A benefit corporation is a corporation formed or converted under state statute. In California, benefit corporations are governed by Corporations Code sections 14600 and following. Delaware has a similar form called a public benefit corporation (PBC).
- A social purpose corporation is a separate California form that lets a corporation adopt one or more specific social or environmental purposes alongside profit.
A company can be a benefit corporation without B Corp certification, can hold certification without being a benefit corporation (in some situations), or can do both.
How California Benefit Corporations Work
A California benefit corporation must have the purpose of creating a general public benefit, meaning a material positive impact on society and the environment taken as a whole, and it may also name one or more specific public benefits. Key features include:
- Stakeholder duties: Directors must consider the effects of their decisions on shareholders, employees, customers, the community, the environment and other stakeholders.
- Annual benefit report: The company must prepare an annual report assessing its overall social and environmental performance against a third-party standard, deliver it to shareholders and post it on its website if it has one.
- Limited enforcement: Claims that the company failed to pursue its public benefit can generally be brought only by the corporation or certain shareholders and directors through a “benefit enforcement proceeding,” not by the general public.
- Supermajority approvals: Converting an existing corporation into a benefit corporation, or giving up that status, generally requires a heightened “minimum status vote” of the shareholders.
A benefit corporation is taxed like any other corporation. It is not a nonprofit and does not receive tax exemption or tax-deductible donations.
The Delaware Alternative
Many venture-backed startups are Delaware corporations, and Delaware’s public benefit corporation statute is a common choice for mission-driven companies that expect to raise institutional capital. A Delaware PBC must identify a specific public benefit in its certificate of incorporation, balance stockholder interests against that benefit and report to stockholders on its progress at least every two years. Delaware has amended its PBC rules several times to make conversions and stockholder suits more manageable, so confirm current requirements before choosing a jurisdiction.
How B Corp Certification Works
B Lab’s process has historically centered on the B Impact Assessment, an online questionnaire covering governance, workers, community, environment and customers, with a minimum verified score required for certification. B Lab has adopted new standards that replace the single-score model with a set of topic-based requirements companies must meet, with a transition period for certification and recertification. Because the details are changing, check B Lab’s current standards before you start. In general, the process involves:
- Assessing your company against B Lab’s current standards and identifying gaps.
- Satisfying the legal requirement, which usually means amending your governing documents to require consideration of stakeholders and, where available, adopting benefit corporation status.
- Submitting for B Lab’s evaluation and verification, which includes documentation requests, a risk review of industries and controversies and a review call.
- Signing the B Corp agreement, paying annual fees and publishing a public profile in the B Corp directory.
- Recertifying periodically (historically every three years) and updating after certain changes of control.
Does a Mission-Driven Structure Help or Hurt Fundraising?
It depends on your investors. Some funds and impact investors favor benefit corporations because the mission is built into the charter. Others worry that stakeholder duties may complicate an exit or create litigation risk. In practice, many venture investors have become comfortable with Delaware PBCs, but founders should raise the structure early in term sheet discussions rather than surprise investors in diligence. Benefit status also affects M&A: a buyer may need shareholder approval at a supermajority level, and the board must consider stakeholder interests in approving a sale.
If you are still choosing an entity, our overview of business formation covers the basics, and our guide to Series A financing explains what institutional investors typically expect.
Practical Considerations Before You Convert
- Founder alignment: Make sure co-founders agree on the mission and how it will be measured. Disagreement over purpose is a common source of founder disputes.
- Shareholder approval: Map out which classes of stock must approve a conversion and whether any investor consent rights apply.
- Reporting burden: Budget time and money for annual benefit reports and, if you pursue it, B Lab certification fees and verification.
- Marketing claims: Do not describe your company as a B Corp until certification is complete, and keep sustainability claims accurate to avoid consumer protection issues.
Frequently Asked Questions
Is a B Corp the same as a benefit corporation?
No. B Corp certification is a private standard granted by B Lab. A benefit corporation is a legal entity type created under state law. A company can be one, the other or both.
Do benefit corporations pay taxes?
Yes. A benefit corporation is taxed like a regular corporation. It is not tax-exempt, and payments to it are not charitable donations.
Can an LLC become a B Corp?
An LLC can generally pursue B Corp certification by amending its operating agreement to meet B Lab’s legal requirement. California’s benefit corporation statute applies to corporations, so an LLC cannot become a California benefit corporation without converting to a corporation.
Will becoming a benefit corporation scare off investors?
Not necessarily. Many investors are comfortable with benefit corporations, particularly Delaware public benefit corporations, but some are not. Discuss the structure with prospective investors early and understand how it affects voting, exits and fiduciary duties.
The Takeaway
A B Corp label is a certification; a benefit corporation is a legal commitment. Founders who want their mission to survive new investors, new management and an eventual sale should consider both the entity structure and the certification, and should understand the governance and reporting obligations each brings.
How Sutter Law Can Help
Sutter Law advises founders on forming and converting to benefit corporations, Delaware public benefit corporations and social purpose corporations, and on the charter and bylaw changes needed for B Lab’s legal requirement. Learn more about our startup law practice. Contact us for a free consultation.
This article is general information, not legal advice. Reading it does not create an attorney-client relationship.
