The Difference Between B Corporations and Benefit Corporations

The Difference Between B Corporations and Benefit Corporations

By Jeremy Chen

This short article will clarify the confusion surrounding the similarly named B Corporation (a.k.a. B Corp) and Benefit Corporation by offering a brief explanation of the differences between the two.

What is a B Corporation?

A B Corporation is a company that is certified by B Lab, an independent third-party non-profit organization, as meeting B Corporation standards. B Corporation standards measure a company’s accountability, community involvement, treatment of employees and consumers, and environmental impact. California law is not involved in this private certification process to which a company voluntarily submits itself. To be certified, a company must pay a fee (based on revenue) for B Lab to assess whether the company meets its standards for certification. To hold certified companies accountable, B Lab periodically conducts random audits.

What is a Benefit Corporation?

A Benefit Corporation is a company that is legally incorporated in the state of California (or other state with a benefit corporation statute) using the Benefit Corporation entity form. Benefit Corporations are governed under California law (the applicable laws are set forth in the Corporate Flexibility Act of 2011 and the California Corporations Code). Directors of a Benefit Corporation receive greater legal protection for directors, who make business decisions that promote social and environmental objectives, and B Corps do not have this same legal protection. In addition, as a Benefit Corporation, a company must measure its performance in achieving its mission-based objectives against an independent third-party standard; but the company need not be audited or certified by the organization that created the standard.

In a nutshell, a B Corp is a company that has obtained an independent third-party certification, while a Benefit Corporation is a legally designated corporate form. A Benefit Corporation can submit itself to the B Lab certification process and simultaneously be a B Corp; and a B Corp certified company can incorporate as a Benefit Corporation.

Disclaimer. The information in this article is not legal advice, and is provided only for informational purposes. This article is only a general discussion, and does not include all relevant information regarding the topics and issues addressed within it.

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