Benefit Corporations

On January 1, 2014, the Nevada Secretary of State began accepting filings for a new
entity, the benefit corporation, or “B corp.”

Officers and directors of traditional corporations labor under a fiduciary obligation to turn
a profit for shareholders.  A corporation’s failure to do so can result in a shareholder
derivative suit, where the individual shareholders sue the management or board for
failure to keep profits in the crosshairs.  Companies turning an eye toward social
change and community activism have recently struggled with whether to incorporate as
a for-profit business or as a non-profit.  The benefit corporation is a marriage of the two,
with one major misconception I’ll address later.

A concept pioneered by globally-conscious retailer Patagonia, the benefit corporation
allows a for-profit company to subordinate its fiduciary duty to turn a profit to a larger,
more “beneficial” goal.  Whether a company would qualify for B corp status depends on
the type of work it will be doing.  In Nevada, a company can qualify as a benefit
corporation when it creates a “general public benefit” which is defined in AB 89 as “a
material positive impact on society and the environment as assessed against a third-
party standard that satisfies certain requirements.” Clear as mud, right?  The Articles of
Incorporation will identify specific public benefits such as preserving the environment,
providing the underserved with products or services, or promoting the arts or sciences.  

As a relatively new entity type, benefit corporations will be subjected to a significant
amount of scrutiny.  In addition to standard annual reporting required of all corporations,
B corps will also be required to provide “benefit reports” as evidence they are adhering
to their beneficial purpose.  These reports must be submitted to shareholders, the
Secretary of State, and published online.  Directors and officers will be required to
consider the impacts of their decisions not only on shareholders but also “stakeholders”
to include employees, suppliers, customers, the environment, the community, and any
other faction that the corporation’s purpose might affect.

Benefit corporations can be formed in Nevada by filing appropriate articles of
incorporation.  Existing corporations can become benefit corporations by filing amended
articles with the Secretary of State and paying the associated filing fee.

Now, for the common misconception.  Many people think a B corp is tax-exempt, like a
non-profit.  In fact, benefit corporations are for-profit entities.  Therefore, they are
subject to the same tax requirements as a traditional corporation. The only difference is
that management’s pursuit of a social benefit wouldn’t make them liable for a breach of
their fiduciary duty to turn a profit.  I share the opinion of others who have also studied
the B corp – as of now, the entity type is more of a marketing play than anything.  Many
of the clients I’ve discussed this option with ultimately decide that the scrutiny isn’t worth
the potential PR.

Update ~2025: I wrote this article way back in 2014 when B corps became a thing in
Nevada. Even then, very few jurisdictions allowed for B corp formations and, over time,
the state governments who do recognize the B corp had to establish and enforce
requirements for B corp status. A certification agency, B Lab, emerged with a
recognizable logo that distinguishes B corps certified through its process. [Sidenote: if
you’re looking to establish a sustainable business model, just create a certification,
make people jump through hoops and pay handsomely for the pleasure, require them to
renew and pay annually…BOOM: profit.]

Recently, Dr. Bronners decided to drop its B Lab certification because it believes B Lab
has allowed its very recognizable certification symbol to grace the marketing materials
of multinational companies known for their corporate social irresponsibility. B Lab
maintains that it certifies with integrity, but it’s hard to deny the unavoidable tension
between any certifying agency’s desire to be selective about its certifications and the
opposing need to make a profit.

We have always maintained that establishing your company as a B corp, being a for-
profit, tax-paying entity, is merely a marketing play and the “juice may not be worth the
squeeze” when it comes to the additional annual filing requirements to prove your
commitment to a public benefit. After all, it’s hard enough maintaining all your licenses
without assuming additional complications. There are certainly other ways to set
yourself apart from your competitors without making your corporate governance a
bigger pain in the neck.