B Corporations: What’s All the Fuss About?
This article was published in the Silicon Slopes Magazine, Summer 2022
by David Politis
Since the moment the first legal entity was formed as a corporation, the focus has been quite straightforward for these firms:
Make money for the business owners.
This approach holds true for both privately owned and controlled firms, as well as publicly held corporations where shares of their businesses are available for sale or purchase through stock markets.
Although the emphasis for nonprofit and not-for-profit corporations is to not make profits, per se, the reality is that the earliest nonprofit entities emerged in the 1860s, with formal launch of the 501(c) nonprofit organization and taxation regulations implemented with passage of the Revenue Act of 1954.
So what does all of this have to do with Public Benefit Corporations or B Corps as they’re sometimes known? And is there a difference between B Corporations and what are described as Certified Benefit Corporations?
This article seeks to explore these and related questions, with a particular emphasis on Utah’s take on B Corps.
A Brief History of B Corporations
B Corporations, or Benefit Corporations as they are sometimes called, got their start in the state of Maryland in 2010 with enactment of the very first law in the United States that allowed companies to be formed that would have their primary concern centered on something other than the benefit of shareholders.
From a layperson’s perspective, boards of directors of either existing or new corporations can choose to establish a so-called higher cause or purpose for their firm, one beyond profit-making. In these instances, these organizations are legally and structurally formed and directed to
• Benefit society as a whole (or a segment thereof), or
• Benefit the environment (or a segment thereof).
For these entities, the boards, executives, and all employees are charged with governing and operating the entity toward such end results. Put more simply, such corporations are designed as forces for good.
Insights, Legal and Otherwise
To be clear, to create a B Corporation you have to actually choose a formal legal structure as a corporation for your business first, one that you then legally designate with the proper authorities as a Public Benefit Corporation / B Corp.
Typically, that would be as a Subchapter S corporation or as a C corporation. In some jurisdictions, Utah being one of them, it is also possible to form a Limited Liability Corporation, LLC, as the underlying corporate mechanism to operate as a Benefit Corp.
If you are starting out from day one with a new entity, the process is fairly straightforward in Utah. Just visit the website for Utah’s Division of Corporations and Commercial Code, learn what you need to learn, and follow the instructions. (See the URLs in the Endnotes.)
I personally also recommend consulting with an attorney or two before starting a B Corp journey.
If you already have a corporation in place that you would like to transform into a Benefit Corporation, that is also possible, but perhaps a bit trickier, in my opinion.
Here again, the Division of Corporations and Commercial Code, plus legal counsel, will prove instrumental. Once all the paperwork/documentation has been submitted, the state says most approvals take seven business days.
In addition to creating a B Corporation as a legal entity, there is another pathway that has emerged since the mid-2000s that several thousand organizations have since chosen to follow, and that is to have an external organization review and extend to your entity a Certified B Corporation designator.
The Path to Certified B Corp Status
B Lab is a nonprofit organization formed in 2006 in Berwyn, Pennsylvania, but now based in New York City, that is focused on “transforming the global economy to benefit all people, communities, and the planet” by creating “standards, policies, tools, and programs for business.”
Since its founding as a nonprofit, B Lab has grown dramatically on a global scale with over 5,000 organizations of all sizes having jumped through the multistep and painstakingly reviewed process to achieve official Certified B Corp status, somewhat akin to the certifications provided by other nonprofits like Underwriters Laboratory and TÜV in Europe.
Additionally, over 200,000 companies around the world implement B Lab’s B Impact Assessment and the SDG Action Manager systems to “manage their impact” environmentally, societally, and from a governance standpoint.
Once certified, companies maintain their Certified B Corp status by adhering to the standards set by B Lab and by paying annual fees ranging from $2,000 to over $50,000.
Benefit Corporations in Utah
In Utah, the state jumped on the B Corporation bandwagon in 2014, close to four years after Maryland opened the figurative floodgates, and today, the District of Columbia and 35 states legally authorize and recognize B Corporations. NOTE: Utah legalized LLCs as underlying corporate structures for B Corps in 2018.
In Utah, the terms B Corporations and Benefit Corporations are synonymous, with no distinction between the two, either functionally or legally.
According to Zach Whitney, communication director for Utah’s Department of Commerce, there are presently 29 Benefit Corporations in Utah, ranging from Holladay-based Anchor & Alpine to Provo-based Zuloo.
Conversely, Salt Lake City-based Apple Tree for Kids Experiencing Homelessness and Orem-based PilmerPR are two of nearly 50 Benefit LLCs based in Utah today.
Nationwide, the latest research suggests that close to 2,000 corporations have opted for the legal approach of becoming a Public Benefit Corporation as well.
In the case of PilmerPR, John Pilmer explained to me that he found that transforming his firm to a Benefit Limited Liability Company changed his company culture.
“Young people like to work for a company that is socially responsible. We are, and we have to, report it to the state once a year. Eighty percent of all new businesses in Utah are LLCs, so (this designation) can make the state more competitive.”
Each year, PilmerPR and the other 75+ B Corps in Utah need to file an annual report with the state, and in the case of PilmerPR, that was a 13-page document for 2021 that highlighted, in part, some of the public benefits it had achieved during the year. For PilmerPR, this included mentoring aspiring PR professionals, deploying a family-first policy for team members, and supporting various local nonprofit organizations and charitable causes, among other efforts.
To ensure there are no misunderstandings, Pilmer explained that his firm has under 10 employees, certainly not a large firm by any estimation.
“(Being a Benefit LLC) levels the playing field with small companies like ours and big benefit corporations,” Pilmer said. “(Additionally), the vast majority of consumers now prefer to buy from a company that is socially responsible.”
Naturally, there are some, especially among hardcore ESG advocates, who argue that every business should be a nonprofit, a not-for-profit, or a B Corporation, certified or not.
Conversely, there are equally hardcore capitalists that claim the only purpose for having a business is to make a profit for its owners because it fills the needs of consumers by delivering products and/or services to them.
However, is there, perhaps, a middle ground?
That to me is the intriguing question, one that Utah-based organizations like Zuloo and PilmerPR are trying to address even as you read these pages.
AUTHOR’S NOTE: As I am not an attorney, nothing in this article should be seen as providing legal advice or counsel.
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