It is delightful and quite encouraging to more and more businesses make an effort to give back to the world.

Companies like Etsy, Patagonia and Warby Parker are among a new generation of socially responsible businesses that can fall under the category of a benefit corporation or a Certified B Corp.

But what is a benefit corporation? And how is it different from a Certified B Corp? Let’s break down the two types of organizations:

Defining a Benefit Corporation

A benefit corporation is a true legal entity classification for a for-profit business. Social entrepreneurs can choose this classification to mirror their desires for fiduciary and environmental responsibility.

Benefit corporations must commit to the following:

“Making a material positive impact on society and the environment”

The legal documents utilized in creating this type of a corporation are required to consider the consequences of all key actions as they affect stakeholders, not just shareholders.

All existing corporate laws still pertain and leadership must still report on the corporation’s efforts via current third-party standards.

Benefit corporations are not allowed to receive or provide to financial supporters the tax benefits a nonprofit is entitled to. However, traditional profits are allowed and should be striven for.

Defining a Certified B Corporation

Benefit corporations can go an extra step and seek B Corp certification.

B Corp certification is a third party certification and includes considerations for the following key items:

  • Measurable Social Performance
  • Accountability
  • Transparency
  • Measurable Environmental Performance

Part of the process is the B Corp Impact Assessment, which measures the areas of Community, Workers, Governance and Environment. There are also fees involved and future audits to insure compliance with all of the standards.

Companies not wishing to be monitored regularly in these critical areas should refrain from becoming a Certified B Corp.

Key Differences and Similarities

Although both designations are noble, there are some basic differences and similarities. Here are a few of them:

  • B Corp is a voluntary certification and can be dropped at any time
  • Benefit Corporation is a permanent change to the corporations structure
  • Both are of great PR value in attracting and retaining employees, investors and customers
  • Both classification are a superb method to illustrate key differences with competitors
  • Both require a genuine commitment to giving back
  • Both represent alternatives to the classic 501c3

Keep in mind not every state has approved benefit corporations yet. There are also several states with legislation pending to create this new classification.

Make no mistake, either one of these designations are a strong testament to a new more socially conscience form of a corporation. Perhaps in the future these entities will be more commonplace rather than a rarity!

Have you ever worked with a benefit corporation or a B Corp? How was the experience? Let us know in the comments below!

Jay Love

Jay Love

Co-Founder & Chief Relationship Officer at Bloomerang
A 30+ veteran of the nonprofit software industry, Jay Love co-founded Bloomerang in 2012. Prior to Bloomerang, he was the CEO and Co-Founder of eTapestry for 11 years, which at the time was the leading SaaS technology company serving the charity sector. Jay and his team grew the company to more than 10,000 nonprofit clients, charting a decade of record growth. Prior to starting eTapestry, Jay served 14 years as President and CEO of Master Software Corporation. MSC provided a widely used family of database products for the non-profit sector called Fund-Master. He currently serves on the board of the Center on Philanthropy at Indiana University and is the past AFP Ethics Committee Chairman. Jay is also the author of Stay Together: How to Encourage a Lifetime of Donor Loyalty.