8982 / What is a B corporation?

A B corporation is a relatively new type of corporation that has gained popularity in recent years. A “B” corporation, also known as a “benefit corporation,” is a corporation that is formed with the express purpose of fulfilling some type of socially responsible mission that is intended to create a general public benefit. Not all states have passed legislation that makes the benefit corporation a separate legal entity that taxpayers can consider in their choice of entity analysis. Maryland, California, Hawaii, New Jersey, New York, Vermont and Virginia are among those that have passed legislation.¹

A B corporation is not a unique type of entity—rather; it is a corporation where the charter provides that it will be operated as a benefit corporation. The charter will typically provide the specific socially responsible purpose that the B corporation exists to fulfill. Essentially, the B corporation’s officers and directors will be liable not only for operating the corporation in order to achieve a profit, but also to fulfill the specified social purpose.

Although not required at formation, since a B corporation is essentially formed as a C corporation, several nonprofit groups exist to provide certification, as well as guidance and assistance in determining the public benefit structure of a B corporation. One of these, a nonprofit group called “B Labs” provides an assessment test that the corporation takes in order to determine its social and environmental impact and goals.² Once the corporation “passes” this test, as long as it meets all of the legal requirements applicable to validly formed corporations ( Q 8952) and signs a declaration that it will operate as a B corporation, it becomes certified.

Some state statutes provide for a cause of action by the B corporation, directly or through its shareholders, against a B corporation’s officers and directors for failure to pursue the public benefit purpose that is specified in its charter.³ Further, state statutes require the B corporation to describe its activities relating to the specified public benefit in its annual report to shareholders. As such, a B corporation is essentially a type of C corporation that is subject to certain additional requirements, which vary by state, related to the performance of some public good.