What is a B corporation?

On Behalf of | Feb 18, 2020 | Business Law

For people who feel strongly about environmental and social concerns, running a business in a way that reflects their values can be a challenge. The traditional corporate model of prioritizing shareholder value may not be consistent with their personal ethics, but they may not know how to reconcile their beliefs with making a profit from their business.

Fortunately, a majority of states, including Pennsylvania, have laws on the books recognizing a business structure called a B corporation. According to the Small Business Administration, these companies, also called benefit corporations, seek financial profit while also producing some public benefit. Shareholders hold the administrators accountable for maintaining these standards. Some also become certified with third-party organizations that keep tabs on whether the B corporation is properly balancing its mission to do good with earning profit.

The process for becoming a certified B corporation may vary depending on the certifying organization. The Harvard Business Review explains that one such organization, called B Labs, requires companies to first cross a certain performance threshold as it relates to creating value for the community, the environment, the company’s employees and other non-shareholding stakeholders.

B corporations are similar to C corps in some ways. The most obvious similarity is taxation. Like C corps, B corps are legally separate from their owners and pay corporate taxes. However, B corps differ from C corps in terms of their accountability, purpose and transparency.

Most B corporations are small or medium-sized businesses held privately. Since 2007, when certification for B corps first became available, there has been an exponential growth in certified B corporations.

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