There is an ever-increasing number of businesses that are looking to expand their reach and impact by incorporating business structures that give them additional flexibility and benefits. In recent years, the use of benefit corporations has increased substantially.
These businesses are called benefit corporations (or B Corps) and are relatively new legal entities that come with increased transparency and accountability for achieving public good and maximizing profits, as most businesses strive to do.
Let’s take a closer look at the definition of a benefit corporation and what these entities mean for investors.
What Is a Benefit Corporation?
A benefit corporation, also known as a B Corp or Certified Benefit Corporation, is a type of company with primary intentions beyond simply generating profit for its shareholders. These companies consider social and environmental issues alongside shareholders’ financial interests in their business decisions. This contrasts with traditional corporations that are required to maximize profits for shareholders.
How Does a Benefit Corporation Differ From a Traditional Corp?
A traditional corporation’s main focus is to maximize profit for its shareholders. A B-Corp’s main focus is to maximize profit and positively impact society and the environment. Of course, there is a grey area between these two extremes. But generally, B-Corps create long-term value for society and shareholders; value that goes beyond the bottom line.
Investing in B-Corps
Many socially responsible investors are drawn to the idea of B-corporations or businesses that have been certified as such. There are several certification companies, such as B Lab, which require B-Corps are required to pass three standards:
- The B-Corp must have a positive impact on society and the environment.
- The B-Corp must have a governance process that considers the impact on stakeholders, not just shareholders.
- The B-Corp must be audited annually to ensure that it meets these standards.
Certification requires the company to report on its social and environmental performance, make its directors and officers accountable for social and environmental risk, and set a governance structure to support the management of these risks.
That said, B-corporations are still corporations, which means they can issue stock and pay dividends to investors. This means that socially responsible investors can still make a profit when investing in B-corporations.
However, it may also reduce overall profits since the company will be spending money on social and environmental projects. The reduction in profits may be worthwhile if it leads to more sustainable businesses and stronger communities.
The Pros of B-corps for Investors
Investing in B-Corps has numerous benefits. First, B-Corps are legally required to create a positive impact for their stakeholders and the communities in which they operate. This is something that traditional corporations often fail to do.
Simply put, they have a special type of governance process that considers the impact on stakeholders, not just shareholders. B-Corps can also help create new jobs and boost the economy since they can use their profits to hire more employees and expand their operations.
Another benefit of investing in B-Corps is that B-Corps have a higher rate of long-term success compared to traditional corporations because of their legal obligation to create a positive impact for their stakeholders and the communities in which they operate. Traditional corporations don’t have this same legal obligation. So, they often lack the motivation to create a lasting, positive impact.
The Key Takeaway
The word “benefit” has many meanings. It can refer to a special privilege, aid, or assistance. In business, the word “benefit” is used in describing corporations that have a positive impact on society and the environment in which they operate.
For many investors, B-Corps are seen as a triple win: They impact society, create great products, and do it all while also having a positive impact on the world. They are worth the investment if you’re looking to use your money for good.