Improving Society through Your Business
Corporations have become the favorite target of pundits and critics recently. While some corporate practices may well deserve the censure, if you are considering incorporation or are already incorporated in Virginia, there is now an option available that emphasizes the good your company does for society. It is called a “B Corporation.”
A “B Corporation”—the “B” stands for “benefit”—is a form of incorporation available to for-profit businesses that help society in some way that is integral to the business’s service, product, or mode of operation. It is an entity type available presently in only a handful of states. Virginia’s Benefit Corporation Statute (§§ 13.1-782 et seq., Virginia Code, 1950, as amended) took effect on July 1, 2011.
Is a B Corp in Your Future?
To begin to evaluate some of the benefits and challenges of this new entity type, consider the following frequently asked questions:
1. Should I consider a B Corp for my business?
If you truly see the achievement of a “public benefit” as integral to your business model, then the answer might be “yes.” A B Corp is a hybrid – it operates as a for-profit company, but brings a nonprofit ethos into its mission.
The achievement of profit nonetheless remains fundamental. When investors purchase stock in a B Corp, they are investing in an enterprise from which they expect profit or dividends—not making a charitable contribution. Moreover, a B Corp is not a tax classification. For tax purposes, a B corporation will be considered either a C or S corporation and taxed accordingly.
In addition to pursuing profit, however, the company must be equally serious about the “public benefit” it will provide. This entity type is not a gimmick or mere publicity ploy. While B Corp status boosts a company’s credibility, it carries certain requirements that cannot be ignored.
2. What are the special requirements for forming a B Corp?
While there are other considerations which must also be evaluated, below is a very brief overview of the requirements to set up this type of corporation.
- The Articles of Incorporation must set forth the public benefit(s) the B Corp will achieve. Articles of Incorporation for an existing corporation can be amended. (Additional steps apply to such an amendment if shares have already been issued.)
- A B Corp shall have as one of its purposes the creation of a general public benefit (i.e., a material positive impact on society and the environment taken as a whole, as measured by a “third-party standard,” from the business and operations of a B Corp).
- A B Corp may identify in its Articles of Incorporation or bylaws, or as otherwise adopted by the board of directors, one or more specific public benefits that the B Corp will create. (A “specific public benefit” means a benefit that serves one or more public welfare, religious, charitable, scientific, literary, or educational purposes, or other purpose or benefit beyond the strict interest of the shareholders of the B Corp.)
3. Can you give me some “public benefit” examples?
Specific public benefits can include:
- Providing low-income or underserved individuals or communities with beneficial products or services;
- Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
- Preserving or improving the environment;
- Improving human health;
- Promoting the arts, sciences, or advancement of knowledge;
- Increasing the flow of capital to entities with a public benefit purpose; and
- Conferring any other particular benefit on society or the environment.
4. How would B Corp status affect its board of directors?
One of the aspects of the B Corp that is most interesting is how it affects fiduciary duties. Ordinarily, a corporation’s board of directors makes decisions solely based on the best interests of shareholders. With a B Corp, however, the statute affirmatively requires the directors to consider non-shareholder interests, such as (but not limited to):
- The employees and workforce of the B Corp, its subsidiaries, and suppliers;
- The interests of customers as beneficiaries of the general or specific public benefit purposes of the B Corp;
- Community and societal considerations, including those of each community in which offices or facilities of the B Corp, its subsidiaries, or suppliers are located.
Bottom Line
By authorizing “B Corporations,” Virginia has codified a vehicle through which you can do business and improve society. Of course, there are more details about the formation and maintenance of a B Corp that must be considered before making a decision about whether it’s a good fit for your company. To learn more about B Corps, contact Scott Taylor at SmolenPlevy at 703.790.1900 or swtaylor@smolenplevy.com.
