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Benefit Corporations ‘Need More Oversight’

Benefit corporations, for-profit companies that also have social or environmental missions, need more oversight by state regulators in California, legal experts said at a National Association of State Charity Officials conference.

About 75 companies have registered as “benefit” or “flexible purpose” corporations since Gov. Jerry Brown signed two bills into law last year to give businesses greater freedom to pursue social and environmental objectives, NBC reported.

Patagonia, a benefit corporation, was the first company to take advantage of the new California law.

Since the law went into effect in January, 60 firms have opted to become benefit corporations, which are required to meet third-party social, environmental, accountability and transparency standards. B Lab, a non-profit that created the new category, is responsible for certifying benefit corporations. Such certified entities are called “B Corporations” or “B Corps.”

The other 15 companies are registered as flexible-purpose corporations, a category that has fewer requirements to ensure they have an explicit social or environmental mission.

But critics have argued that flexibility could allow bad actors to mislead the public and the benefit corporation model could give investors a false sense of security. Private attorneys at the conference said the new categories are not monitored by government agencies to ensure compliance with statutory requirements.

Proponents of the law argue there isn’t a need for state regulation. Like traditional corporations, these new kinds of companies are regulated by shareholders, Erik Trojian, director of policy at B Lab told NBC.

BBMG, Seventh Generation, Benchmark Asset Managers, Workplace Dynamics and New Leaf Paper were founding B Corp certified members. Since then, a number of companies have gained B Lab’s socially responsible business certification.

An increasing number of municipal and state governments have addressed benefit corporations through legislation and tax incentives programs. Philadelphia was among the first cities in the US to provide a pilot tax incentive for certified B Corporations.

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3 thoughts on “Benefit Corporations ‘Need More Oversight’

  1. You’re using the terms B Corp and Benefit Corporation interchangeably, but they are different beasts – the former is the certification from B-Lab, the latter is the corporate designation.

  2. The article still isn’t correct. Companies can opt to incorporate as benefit corporations in California, but those companies do not have to become B-Corp certified by B-lab. Benefit corporations are required to adopt a an independent and comprehensive third party standard to conduct a self-assessment and publish an annual benefit report. There are many independent third party standards available,including Global Reporting Initiative’s assessment tool and B-Lab’s impact assessment tool, both of which are offered free for companies to use. But even using the free impact assessment tool to benchmark and publish the annual benefit report required by benefit corporation legislation will not allow a benefit corporation to claim B-Corp status (or enable them to use the logo that you have pictured next to the headline). Benefit corporations are corporations that have voluntarily chosen to incorporate as a new legal form that requires heightened fiduciary duties and changes the legal requirements of judicial scrutiny in certain situations. While you are correct that B-Lab has helped with the legislative process to get benefit corporation legislation passed in 12 states, the incorporation does not necessarily relate to B-Corp certification other than that B-lab’s experience certifying companies brought to their attention the unclear legal norms and laws that affect social enterprises and that B-Lab offers a free assessment tool that satisfies the statutory requirement in the legislation. A B-Corp certified company does not have to be a benefit corporation (in fact, it doesn’t even have to be a corporation at all), and a benefit corporation does not have to be a certified B-Corp. Also, Flexible Purpose Corporations are not backed by B-Lab and are, in many ways, exactly the opposite of benefit corporations. They allow the corporation to claim FPC status by choosing one narrow purpose without having to adhere to the heightened fiduciary duties of creating a general public benefit (including on the environment, employees, suppliers, communities, etc.)

    There has been a lot of confusion about this, especially given the similarities in the names, I hope this helps.

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