For many business owners, the main goal of a business is to make money for its investors or principals. Everyone wants to increase their margins – for good reason - but many are starting to ask if a successful business can do more than that. Perhaps the true aim of a business is to generate value. Value for customers, value for owners, and value for society. Value can be monetary but it can also be more intangible than that. As globalization has made consumers and business owners more cognizant of the social impact that businesses have on individuals and communities, there is a trend to add a layer of social responsibility to businesses.
This trend is also embodied in the “B” Corporation movement. What’s a B Corp? Historically, there have been two designations for corporations: either “S” or “C.” These two letters refer to sections of the federal tax code. The B (which is not a section of the federal tax code) stands for “benefit,” because the goal of this business model is to take into account the social/environmental impact of operations. Instead of companies being valued solely by their finances, the B corp model adds other factors that measure a company’s value with categories such as: the environmental justice, social responsibility, diversity among employees, charitable giving, procurement sourcing, manufacturing conditions (if applicable), and worker’s benefits. Any business (including LLCs) can voluntarily register as a B corporation through the nonprofit organization “B Lab” (www.bcorporation.net). To be certified by B Lab, a business has to submit annual reports that assess the company on the above categories. With the building interest, most states (including NY!) have passed legislation recognizing B Corps as a new entity type, but North Carolina has not at this point (though it has been considered). This map is a helpful illustration of states that have passed legislation to recognize B Corps as an entity typehttps://benefitcorp.net/policymakers/state-by-state-status.
For tax purposes, where states do recognize B Corps, companies elect to be taxed as either C or S corporations. Where states don’t yet recognize B Corps, there is no tax advantage for being certified through B Lab but there are some intangible perks. For instance, B Corps have good publicity because consumers feel as if they are contributing to something worthwhile when they spend their money. In addition, studies have shown that workers today are searching for work with more meaning. Therefore, talented young professionals may be more likely to work for a B Corp even if the opportunity is not as lucrative as another company. Of course, it comes with the disadvantage of increased annual filing report requirements and documenting those metrics throughout the year.
This is a growing trend to watch develop. Have you considered becoming a certified B Corp? What advantages or hardships have you experienced as a result? I'd love to hear from you.