There’s a stigma that traditional, publicly traded companies are evil, money-grubbing, profit-at-any-cost organizations. Stories of corporate greed and corruption have hardened society to larger companies, even if those businesses are actually well-meaning.
But there’s a new type of corporation that might change people's perception of the big bad corporation—one that doesn’t necessarily have to turn a profit at every corner to satisfy its shareholders.
It’s the B Corp. B Corp—short for "Benefit Corporation"—is a relatively new type of business classification that allows you to factor in the public good along with the bottom line when you're making decisions for the company.
It's an interesting concept and one your business might benefit from.
The Shareholder Factor
Publicly held companies are required to act in the best interests of their shareholders. This means that every dollar earned has to be used in a way that benefits the company (and therefore the shareholder’s interests).
But imagine if you'd bought stock in a company that had $5 million in profits at the end of the year, and it decided to give that money all to charity. Your share’s value probably wouldn’t grow because of that charitable act. That’s why laws established the concept of “shareholder primacy,” or the idea that a corporation’s purpose is to maximize financial gain for its shareholders.
While a company classified as a B Corp is still described as “for profit,” there’s a caveat: It isn't judged based solely on its financial performance but also on its impact on the world around it. Want to start an initiative with your company for improving the town your business is based in? You can do this without fear and retribution from your shareholders if you’re classified as a B Corp. As a B Corp, you have the right to set aside a specific amount of profits that you’d like to earmark for public benefit, such as charities.
When a company applies for a B Corp status, it has to take a test with an unbiased governing body called the B Lab. This rigorous test evaluates different issues and aspects of your business. If a company passes the test, it will be held to incredibly strict practices and policies.
B-Corp Pros and Cons
If you want to build a company with a mission that’s bigger than just earning a profit, a B Corp allows you to act on your social or environmental mission without having to cave to your shareholders. And when you go to sell your company, you're not obligated to sell it to the highest bidder either, which allows you to take other factors into account during the sales process. In addition to these advantages, there are two more:
1. You might have an edge when it comes to hiring talent. The Harvard Business Review found that millennials, who make up a large part of the global workforce, want to work for businesses that connect to a larger purpose. Often, talented people who feel strongly about a cause will be attracted to job positions with companies that have the same focus. Anybody can work for a paycheck, but if your potential employees feel as if they’re working for a greater good, then you could have an easier sell.
2. You'll earn extra publicity. Your business has competition, so anything you can do to separate from the pack is a great thing. Becoming a B Corp with a focus on something more than dollars might just earn you some press.
Of course, not everything about B Corp status is a positive:
1. Getting accepted is hard. It’s not easy to become a B Corp. The Impact Assessment test has more than 200 points, and you'll have score 80 or more on it to pass. Once your company passes the test, it's held to rigorous, ethical standards.
2. There are no additional tax benefits from being a B Corp as opposed to more traditional corporations like an S Corp or an LLC. If you thought that you might get a tax boost for changing business entities, think again. B Corps have to pay the same taxes as everyone else.
3. It’s not available in every state. As of right now, there are only a handful of states that actually recognize the B Corp as a business classification.
As this new breed of business gains popularity, it’s certainly refreshing to see an alternative structure where profits aren’t the only thing a company is trying to improve.
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