Blog | Entrepreneurship

What You Need to Know About B Corps

A New Business Entity that Business Owners and Investors Shouldn’t Overlook

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Garrett Sutton posted a blog not too long ago about choosing your business entity. Josh and I have much respect for Garrett and his knowledge. But if you read the blog, you’ll notice that he didn’t talk about Benefit Corporations (B Corps). The reason? It’s still a new concept to most of the world. According to the Benefit Corporation website, only thirty-four states have passed legislation to recognize B Corps and six are currently in the works.

So, what is a Benefit Corporation? To put it simply, it’s a new entity that is founded on a long-term mission to create change. If you think it sounds a lot like a nonprofit organization, you’re right. However, B Corps operate as for-profit organizations. If you read my last blog, you know that it’s possible to save the world and make a profit at the same time. It doesn’t make you evil, it makes you a social entrepreneur. The structure is still the same; taking a social need and supplying a solution. You just get paid for doing it.

In recent years, there has been a need to create a for-profit entity that was socially and environmentally conscious. Many were asking the question: how could an entity attract investors, pay talented people, grow the business, all the while helping others? A nonprofit group called the B Lab took the challenge. They figured out how to tweak the traditional corporation model in a way that would create great social and environmental change.

B Corps still hold limited liability protections and have the same taxation. What makes B Corp’s different is:

  1. it must have a mission to positively impact society and the environment;
  2. it must have a fiduciary duty to consider all interests of its workers, communities and shareholders;
  3. and it must submit an annual report describing its performance and social and environmental efforts.

Some prime examples of companies that have implemented this entity are: Ben & Jerry’s, Kickstarter, Hootsuite, Patagonia, Method and King Arthur Flour.

Campbell’s Soup is a great example of creating a B Corp subsidiary. Just over a year ago, it established The Soulful Project, an initiative that states: for every serving purchased, they will provide a serving of their 4-grain hot cereal to a regional foodbank in your area. They turned that project into one of two B Corps under the Campbell’s Soup organization.

With proof that companies can be successful, grow, and be socially and environmentally successful, it’s not surprising that people are interested in the benefits of investing in B Corps. Over $2 trillion, or nearly, 10 percent of all U.S. assets are committed to socially responsible investments. That says a lot about the potential for investors.

There are four well known, publicly traded B Corps: Etsy, Laureate Education, Natura, and Silver Chef. Why so few? Again, B Corps are new. It’s taking time for companies to make the shift. But it’s expected that over the next couple of years, there will be more publicly traded B Corps. In 2017, the major food company Danone combined all its U.S. operations to form one large company called DanoneWave. They released a statement that they plan to certify as a B Corp by 2020. The potential is there and growing.

That’s what makes investors interested along with these few points:

  • B Corps offer sustainability. According to multiple studies, 88% of reviewed sources found that companies with robust sustainability demonstrate better operational performance, which ultimately translates into cash flows.
  • B Corps have direction. According to CalPERS, companies that have social and environmental motives are more likely to perform well over the long-term and will manage their risk more effectively.
  • B Corps have a strong purpose. According to a Deloitte Millennial Survey, millennials will comprise 75% of the global workforce by 2025. And they want to work for companies that make a positive contribution to society.

The bottom line is that B Corps will be a powerful force in the world of business. As their uses spread, and as more people become interested in investing, B Corps will be the best of both worlds.

To learn more about B Corps and the world of social entrepreneurship, be sure to read my book The Social Capitalist.

Original publish date: September 03, 2018

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