Jun 24, 2011

How to Become a Benefit Corporation

 

How to Become a Benefit Corporation: Why Become a B Corp

For social entrepreneurs, a B Corp was created to help them specifically meet their needs, which is to scale their really good idea. But when they scale, they don't also want to lose control of their social mission, explains Gilbert. "Becoming a for-profit corporation helps them scale. Becoming a B Corp helps them to hold onto their mission."

The big advantage of a B Corp over a nonprofit organization is the for-profit structure. As a for-profit benefit company you can attract outside investors that a non-profit organization cannot. While B Corps may raise money through donations (there is no rule against it), it is however difficult as most foundations require grantees to be 501c3 nonprofits. Another advantage of becoming a B Corp is that you can pay people whatever salary you wish, allowing you to attract top talent. It's more than just your stakeholders understanding that there is a social component to the business; a B Corp is legally required to pursue that social mission, Gilbert says.

For social entrepreneurs being a B Corp gives them a couple of very important tools. "In addition to getting legal protection to their social mission even as they raise outside capital, they are getting a way to differentiate themselves in a very cluttered marketplace where everybody claims to be green, socially responsible, or sustainable," adds Gilbert.

Dig Deeper: Could You Be a B Corporation?


How to Become a Benefit Corporation: How to Become a B Corp

If you are starting a new company, you can simply incorporate as a benefit corporation in Maryland, Vermont, New Jersey or Virginia. The procedure of incorporation is the same as with any other corporate structure. If you are an existing company seeking to become a benefit corporation, then you need to amend your governing documents (i.e., articles of incorporation and bylaws).

To become a certified B Corp under B Lab, you have to complete four tasks:

1. Take and pass the B Impact Ratings System. That gives you an initial score on your company's employee and environmental practices.

2. The next step in the process involves a telephone interview and review with a B Lab staff member. If your score is above an 80 your company is eligible for certification.

3. Begin work on adopting the B Corporation Legal Framework (amending your governing documents).

4. The final task is to fill out and sign a Term Sheet that makes your certification official. Certified B Corps are subject to random third-party audits. Moreover, companies are certified only for two years and must constantly recertify as standards evolve.

Over the last five years, social entrepreneurship has become more widely recognized as a career choice. "Most social entrepreneurs think of it as a vocation, it's their calling," says Gilbert. "It used to be, if people felt a call to serve they would go run a nonprofit or go serve in public office." Increasingly, entrepreneurs are frustrated by both politics and the constraints that are placed on nonprofits, he adds. "They view themselves as business people and problem solvers."

Indeed, social entrepreneurship provides a more compelling path. Community and environmentally minded business owners get to serve in a way that allows them to call their own shots, be innovative, and move quickly to respond to market demand in a way that was once only afforded to traditional businesses. "I want to apply my talent, energy and drive to private enterprise but I also want to serve the public. Social entrepreneurs now recognize they are not alone. There is a whole movement of out there," Gilbert says. 

The biggest mistake newbie social entrepreneurs make is thinking that having a social mission gives their company a right to exist in a competitive marketplace. Even as a benefit corporation, you still have to be able to compete on the merits of your business—quality, performance, price, added value, service, convenience, and innovation—the same with any viable company.

"No one is going to invest in your company or buy your product just because you say you are one of the good guys," explains Gilbert. "You need to be a highly competitive business and you need to be a high impact business." That's how you attract more investment, build long-term relationships with suppliers, and retain loyal customers. "Remember no margin no mission."

Dig Deeper: A New Kind of Business
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