A Benefit Corporation Overview
Benefit corporations, also known as ‘B corps’ use the power of commerce to promote either specific public or general interest purposes as well as profits. General benefits and interest of the public are described as having a positive impact on the environment and society which is reviewed and evaluated against a third party standard. What is a third party standard? It is usually regarded as an evaluator having no financial interest in the corporation and evaluates the socially beneficial intentions of the B Corp which may provide socially beneficial programs such as housing, economic opportunities for communities or individuals beyond the job creation in the ordinary course of business, improving human health and preserving the environment.
What does a B corps do?
According to the new standards, which only a few states recognize, existing corporations and even nonprofit organizations may convert to B Corp status. This may be advantageous for numerous funding and tax planning purposes. For instance “Couch Surfing”, a private for-profit corporation headquartered in San Francisco, is a global hospitality network that connects travelers with “host homes” and is seeking special tax status, such as a nonprofit organization. However, nonprofit organizations which are recognized at state level do not offer any tax advantages by the federal 501 (c) (3) registration of nonprofit and also restricts the abilities of the organization to accept specific funding.
Pros and cons
B corps are flexible purpose corporations. At first glance, the B Corp seems a welcome addition to the corporate governance landscape that promises to advance the cause of socially responsible business. However, “The Harvard Law School Forum”, courtesy of co-editors and contributors Noam Noked, Mark Underberg and Paul Wiess discussed the broader corporate governance perspectives. The B Corp initiative, however well-intentioned, has troubling implications. The problem is that its rationale rests on the mistaken, though widely-held, premise that existing law prevents boards of directors from considering the impact of corporate decisions on other stakeholders, the environment or society at large.
Advantages and disadvantages
- These corporations may pursue profit and have important social purposes
- Directors of the corporations are personally shielded from liabilities
- Existing corporations can convert into benefit corps by amendment, reorganization or merger
Disadvantages of B CORPS
- In many states they may find difficulty being recognized.
- Directors of the company may hide personal agendas, incompetence, fraud, etc. in the B Corp and, if discovered, try to make justification for their business decisions with a pretense of social interests.
- Shareholders may not realize any profit as Directors may give socially beneficial interests priority over profits while enriching the Directors.
In summary, B Corps can have a positive and beneficial impact on society, people and profits if properly Directed.