When forming a business, there are typically two types of corporation structures that are considered: the S Corp and the C Corp. A new type of organization, the B Corp, allows a company to form in order to solve specific issues that are social or environmental in nature. Although not every organization qualifies for this classification, it can be an effective way to create a unified brand. On the other hand, the qualification process is more extensive because the social or environmental welfare mission of the company must be verified. Here are some of the other pros and cons of a B Corp to consider before filing your articles of incorporation.
The Pros of a B Corp
1. It is an effective marketing tool.
Having a B Corp status is a marketing tool in itself. It gives your organization instant credibility when it comes to the cause that you’re trying to support. Numerous companies claim to be “going green” or “supporting the environment” through different accreditation that may or may not be real. The status as a B Corp lets consumers know that you take your mission seriously and that you can back your claims up with real evidence.
2. It has built-in requirements that must be followed.
When there are several shareholders involved with an organization, the internal debate about the best course of action to follow can be stressful and time consuming. The B Corp provides built-in mechanisms that help to dictate the direction a company must take. There are standards that must be met. Even random audits are used to make sure that all of the rules are being followed.
3. There are numerous ways to get involved.
People who support your organization’s mission may wind up having their contributions be tax deductible. Many B Corporations may qualify for 501c3 status because their mission is to create or maintain a good cause within the local community. Some B Corps may also be allowed to charge annual fees, collect fundraising, and other non-profit activities that are inviting to investors.
4. There is a fellowship of B Corporations that shares resources.
There are numerous member resources that are available to a B Corp once they are allowed to form. The corporation status allows for instant networking with similar business owners who have similar goals in their own local communities. This fellowship allows for sharing in a mutually beneficial way that other corporations may not always be able to have.
The Cons of a B Corp
1. It’s only as good as you make it.
If you are able to maintain your B Corp status by passing the random audits and being transparent about your mission, then you can have a beneficial experience with your B Corp. If you fail an audit or can’t prove you are staying true to your stated mission, then losing your certification will be questioned and your built-up network will be destined to fail.
2. Accountability might be a good thing, but it can also be a headache.
Some decisions a B Corp make are difficult and audits allow a third-party judge to come in and say that you were right or wrong. Sometimes you’re forced to choose between two answers that someone will judge as wrong. You could be making what you think is the best decision for your organization only to have an auditor come in, say you made the wrong choice, and begin the process of trying to strip your B Corp status away.
3. It’s not a corporation status that is available everywhere.
Because the B Corp is so new, it isn’t a method of incorporation that is allowed in every state right now. It is recognized nationally, but you’ll need to check with your local state officials before filing your articles of incorporation to see if it is available to you. It may be recommended that you form an S Corp first and file for 501c3 status after incorporation, then transition to a B Corp status should it become available locally.
4. There are no corporate tax benefits to the status.
Unless you have a tax-exempt status associated with your B Corp, your organization is still going to be responsible for paying the same taxes as any other organization. There are no additional tax benefits associated with this status.
The pros and cons of a B Corp show that it can be beneficial to those who have an organization that qualifies for such a structure. The qualifying process may be difficult, but it could also be worthwhile. Check to see if you can apply for this status as you draw up your articles of incorporation and then be prepared to stay in compliance so that all of the benefits of being a B Corp can be experienced.