“Benefit corporation” and “B Corp” get used interchangeably constantly, but they’re two entirely separate things – one is a state-law legal entity structure, the other is a private certification – and a business can hold either one, both, or neither, in almost any combination.
Benefit Corporation: A Legal Entity Structure
A benefit corporation is a distinct for-profit legal structure authorized under state corporate law, available in roughly 35 states including Delaware, that legally requires the corporation to pursue a stated public benefit purpose alongside profit, and requires directors to consider the impact of decisions on workers, community, and the environment – not just shareholder return – when making corporate decisions. Most benefit corporation statutes also require the company to publish an annual benefit report assessing its performance against a third-party standard, making the public-benefit obligation something that has to be documented, not just declared once at formation.
B Corp Certification: A Private Standard From B Lab
Certified B Corp is a voluntary certification granted by B Lab, a nonprofit organization, to companies that meet its assessed standards for social and environmental performance, accountability, and transparency – available to any legal entity type, including standard LLCs, S-corps, and regular C-corps, not just benefit corporations. B Lab’s certification process involves an independently verified assessment score and, as of its updated standards, specific baseline “Foundation Requirements” every certified company must meet around legal compliance, operational history, and governance.
Where the Two Actually Overlap
B Lab requires companies incorporated in a state that offers a benefit corporation structure to actually adopt it (or a similar legal commitment) as part of maintaining B Corp certification – meaning a Delaware-incorporated company seeking B Corp certification will generally need to become a Delaware benefit corporation as part of that process, while a company in a state with no benefit corporation statute can still get certified without the legal restructuring, since it’s simply not available to them.
Why a Business Might Choose Just One
A company that wants the legal accountability structure and liability protection for pursuing mission-driven decisions – directors legally shielded from a pure shareholder-value lawsuit for prioritizing a stated public benefit – but has no interest in the cost, assessment process, or ongoing recertification of B Lab’s program can become a benefit corporation without ever pursuing B Corp certification. Conversely, a company that wants the external credibility and marketing value of the certified B Corp label, but is incorporated in a state without a benefit corporation option, or simply doesn’t want to restructure its entity, can pursue certification as an LLC or standard corporation instead.
Neither One Changes Tax Treatment
Both the benefit corporation structure and B Corp certification are independent of federal tax classification – a benefit corporation is still taxed as whatever underlying entity type it is (typically a C-corp, since the structure exists under corporate law), and a certified B Corp LLC is still taxed exactly like any other LLC based on its own separate tax elections. Neither designation creates a new tax category or special IRS treatment on its own.
Affiliate Disclosure: This page may contain affiliate links. If you make a purchase or sign up through these links, we may earn a commission at no extra cost to you.
Related reading: Holding Company Structures and Choosing an Entity Structure for a Franchise.
Recent Comments