In an age where consumers, employees, and investors demand more than profits from companies, there is an emerging opportunity for businesses that balance their drive for profits with a strong commitment to a positive impact on society.
B Corps and Benefit Corporations are often called “impact corporations” or “conscious businesses.” These companies exist because the legal structures available in most states either don’t allow or make it difficult for companies to focus on anything but profits when making decisions.
B Corps was created by a group of entrepreneurs and investors who were frustrated by their inability to create sustainable companies that could address societal challenges directly rather than through charitable activities after they exited their primary business.
Continue reading this article to learn more about these impact corporations.
What are Benefit Corporations?
A benefit corporation (B Corp) is a company that is legally required to consider the impact of its decisions on its stakeholders (customers, employees, suppliers, community, and environment) as well as its shareholders. As a result, B Corps have a strong incentive to make decisions that benefit society in addition to their shareholders.
B Corps can be held liable if they do not make decisions that benefit society.
In the United States, B Corps are created under a specific law called the Benefit Corporation Act. The law was passed on June 13, 2013, with bipartisan support from both houses of Congress. It was signed into law by President Obama on September 19, 2013.
Why Are These Types of Companies Important?
B Corps and benefit corporations have allowed entrepreneurs and investors to create new types of companies with a different focus. The result has been more funding for startups focused on positive impact and a greater ability to address major societal challenges such as reducing the effects of climate change, eradicating discrimination, and solving persistent social needs such as hunger.
These companies can also play an essential role in the economy by creating jobs, increasing productivity, and improving the quality of life where they operate. They can also make a positive difference in the communities where they operate, benefitting many stakeholders.
How Are These Companies Different?
There are several key ways B Corps and benefit corporations differ from traditional for-profit companies. They are often created as part of an industry sector that has a significant potential to create a positive impact, such as software, food, healthcare, and financial services.
Investors and customers often expect these companies to be more focused on creating a positive impact alongside profits than traditional companies. This creates an opportunity for these new kinds of companies to scale rapidly.
Since these companies are legally required to consider stakeholders in addition to shareholders, they are likely to make progress on critical societal challenges while they are still private companies
While not all B Corps and benefit corporations are focused on positive impact, those can benefit entire industries by setting higher standards and creating competitive advantages.
The Key Takeaway
B Corps, Certified Benefit Corporations, and other hybrid corporate structures are replacing traditional for-profit companies as the go-to business model for organizations that want to address social and environmental problems like exploitation of employees, harmful effects on communities, destruction of natural resources –
While these organizations won’t solve all our problems, they are an excellent way to incentivize corporations to operate in service of the greater good.