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Benefit Corporations FAQs

Benefit Corporation FAQs

What is a Benefit Corporation?
What is the difference between a Benefit Corporation and a Nonprofit?
Are “Benefit Corporation” and “B Corp” synonymous?
Who should form a Benefit Corporation?
What is a “public purpose”?
Are there compliance responsibilities that are specific to benefit corporations?
Is there an advantage to becoming a Certified B Corp?
Who can be a shareholder in a Benefit Corporation?
Where can I form a Benefit Corporation?
What legal documents are required to form a Benefit Corporation?
Are there any unique requirements in the Articles of Incorporation for a Benefit Corp?
Are there rules for naming a Benefit Corporation?
Do I need a registered agent for my Benefit Corporation?
Do I need an attorney to incorporate as a Benefit Corp?
Does a benefit corporation have “perpetual existence”?
What happens after incorporation?
Can a B Corp be an S Corp?
Can I change my current corporation to a Benefit Corporation?

What is a benefit corporation?

A benefit corporation is a brand new type of business structure that empowers the corporation’s leadership to balance public benefits against shareholder profits. Unlike a traditional corporation which is operated solely to make money for those who invest in it, directors in a benefit corporation are required to balance shareholders’ interests, the public’s interest and the interests of other stakeholders (such as employees).  .

What is the difference between a benefit corporation and a nonprofit?

A non-profit organization is operating solely for some type of charitable or public purpose. There are no shareholders and no private benefits can flow to individuals who control the non-profit.  In fact, private benefit will cost the non-profit its tax-exempt status. In contrast, a benefit corporation is owned by shareholders and is expected to earn profits. Also a benefit corporation can not claim tax-exempt status.

Are “benefit corporation” and “b corp” synonymous?

Benefit corporations are often referred to as “b corps,” but it is important to make a distinction between a “b corp” and a Certified B Corp.  A “b corp” is created under state law—in much the same was as any corporation.  A Certified B Corp is a company that has been certified by the non-profit organization B Lab. A company does not need to be certified by B Lab in order to be a benefit corporation.

Who should form a benefit corporation?

Anyone who wants to be able to make a profit from the business, but who also wants to benefit society in a tangible way (beyond creating jobs) should consider a benefit corporation. In addition, operating as a benefit corporation increases a company’s appeal to the significant number of individuals who prefer to buy from (or work for) socially responsible companies.  There is also an increasing amount of investment money available to companies that are socially responsible.

What is a “public purpose”?

A benefit corporation must be operated to achieve a general public purpose, as well as to generate profits for the shareholders. (Colorado and Delaware require a specific public purpose, rather than simply a general one.)  Most states define a general public purpose as one that has a material, positive impact on society or the environment, as measured against an independent third-party standard. 

States that require a general public purpose also permit the corporation to adopt one or more specific public purposes.  Among the specific public purposes that might be permitted are

  • providing goods or services to low-income/underserved individuals or communities
  • promoting economic opportunities for individuals or communities (other than merely creating jobs in the business)
  • protecting or restoring the environment
  • improving human health
  • promoting the arts, sciences or advancement of knowledge
  • increasing capital flow to entities that have a general public benefit (impact investing)

Are there compliance responsibilities that are specific to benefit corporations?

Yes, although there are many upsides to operating as a benefit corporation, there are additional compliance and governance obligations.  Most states require that publicly traded companies have a “Benefit Director” who is responsible for ensuring that the corporation meets its stated public purpose.  Some states require all benefit corporations to have a benefit director.

In addition, benefit corporations must file a benefit report that uses a third-party standard (such as B Lab) to assess the company’s performance with regard to its public purpose(s).  Most states require that the report be completed annually and made available publicly. (Delaware is an exception. It requires a biennial report and does not require it to be publicly available.)

Is there an advantage to becoming a Certified B Corp?

There are definite advantages to obtaining Certified B Corp status.  Although B Lab certification is not required to operate as a benefit corporation, there are significant advantages to obtaining it.  Certification establishes that your company meets rigorous social and environmental performance, accountability and transparency standards. This eases the burden of benefit reporting and signals that your company is socially responsible and committed to serving the public good. 

Who can be a shareholder in a benefit corporation?

There are no restrictions on who can be a shareholder in a benefit corporation. However, if you plan to make an S corporation election, you must comply with those restrictions.

Where can I form a Benefit Corporation?

Not all states have passed laws that authorize Benefit Corporations. As of January 1, 2016, the following 31 states permit B Corps:

Arkansas, Arizona, California, Colorado, Connecticut, District of Columbia, Florida, Hawaii, Idaho, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, and West Virginia.

Several other states have pending legislation, so expect that number to steadily increase in the coming years.

What legal documents are required to form a Benefit Corporation?

A Benefit Corporation is a corporation, so it is formed by filing Articles of Incorporation in the state that the incorporators select.

Are there any unique requirements in the Articles of Incorporation for a Benefit Corp?

While most of the information is what would be required of any corporation (names of incorporators, principal location, name and address of registered agent), the Articles must state that the corporation is formed to provide for a general public benefit. Many states allow the Articles to state one or more specific public benefits – and Delaware requires a statement of specific public benefit.  In most states, the heading must also state that it is a Benefit Corporation.

Are there rules for naming a Benefit Corporation?

Yes, there are two sets of rules that apply when selecting a name for your Benefit Corporation. 

  • The normal naming rules in the state apply.  In nearly every state, this means that a name cannot be the same or substantially similar as the name used or reserved by any other corporation in the state.  Also, most states prohibit the use of certain words or phrases.
  • Second, the name must include a designator that identifies it as a Benefit Corporation.  Most states require the words “Benefit Corporation” or “Benefit Corp.” Delaware is unique in that it requires “Public Benefit Corporation” or “PBC.”

Do I need a Registered Agent for my Benefit Corporation?

Yes, all Benefit Corporations must appoint and maintain a Registered Agent in the state of incorporation. If the Benefit Corporation registers to do business in other states, it must appoint and maintain a Registered Agent in those states as well.

Do I need an attorney to incorporate as a Benefit Corp?

No, you do not need an attorney to complete and file the required paperwork, but consulting with an attorney to determine the best business and capital structure of the company is prudent.

Does a Benefit Corporation have “perpetual existence”?

Yes, by default a Benefit Corporation has perpetual existence.

After incorporation, you must hold the required meetings of shareholders and directors to adopt bylaws and issue stock.

Can a B Corp be an S Corp?

Yes, Benefit Corporations are creatures of state law, while S Corporation status is a federal tax election. If the corporation meets the requirements to be an S Corporation, which include restrictions on the type of shareholders and the one class of stock requirement, a Benefit Corporation can elect to be taxed as an S Corporation.

Can I change my current corporation to a Benefit Corporation?

You can change from a regular corporation to a benefit corporation by:

  • Ensuring you are incorporated in a state that has authorized Benefit Corporations
  • Obtaining shareholder approval
  • Filing amended or restated articles of incorporation that (1) include a statement that the corporation is a Benefit Corporation; (2) outlines the public purpose(s) and (3) provides for a new name with the proper entity type designation

If you are incorporated in a state that has not passed Benefit Corporation legislation, you have the option of domesticating in a state that permits benefit corporations or forming a new corporation in on of those states. In either instance, consulting with an attorney prior to taking action is advised.

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