What is a Benefit Corporation, and Why Is It Useful for California Entrepreneurs?

In 2011, California passed the Corporate Flexibility Act, making it one of the country’s first adopters of a unique business structure known as a “benefit corporation.” Essentially, a benefit corporation is a corporate entity in which shareholders are empowered to consider the corporation’s impact on the planet, community, employees, and society. 

Normally, shareholders of a C corporation have fiduciary duties to protect the financial well-being of the company, but this is not the primary consideration for shareholders of a benefit corporation. Instead, they have a duty to what has been called the “triple bottom line.” Those three components? People, planet, and profits. 

What Makes Owning a Benefit Corporation Different From C Corporations?

Owners of many organized companies have either annual fees or annual filings they must handle, and officers and directors of benefit corporations share that duty. Benefit corporations must present an Annual Benefit Report that outlines the corporation’s performance in pursuing the public benefit mentioned in the articles of incorporation. 

The other item that must be included in the Annual Benefit Report is the corporation’s performance against a third party’s assessment standard. This assessment standard measures the benefit corporation’s performance in key areas, such as its impact on the environment. This assessment does not have to be certified by a third party, so officers and directors have the option of self-reporting, so long as the standard they use is provided by a disinterested third party like the non-profit B Lab. 

Starting a Benefit Corporation

Filing articles of incorporation with the state of California is the first step in creating a benefit corporation. The articles must state that the entity being created is a benefit corporation pursuing a general or specific public benefit. If you are seeking to convert an existing corporation to a benefit corporation, you must amend its articles of incorporation and get the necessary approvals to do so. 

Benefit Corporations vs. B Corporations 

When researching benefit corporations, you may become confused by references to B corporations. A B corporation is a type of benefit corporation that has scored high enough on the B Impact Assessment administered B Lab to receive this designation. As noted above, there are several third-party assessment standards you can use for measuring a benefit corporation’s performance, but the B Lab standard is one of the most widely used, making the B corporation label one that you may encounter fairly frequently. 

Conclusion

Many business owners take pride in serving their community. And for many businesses, highlighting the public good they provide is helpful for attracting loyal, enthusiastic customers. If you think setting up a benefit corporation might be the right move for your business, contact us here to learn more.