Small Business B Corp Basics: Requirements & Costs
Doing good can be good for business, and more than ever, your customers expect your small business to pay as much attention to its social responsibilities and environmental impact as to sales and profits.
The idea that businesses can be agents for positive change was the spark behind the founding of the Ohio nonprofit, B Lab Inc., and its B Corp certificate program a decade ago. About 1,700 companies have gone through the process so far, including big companies like Etsy, Ben & Jerry’s and Patagonia. Small companies have, too, including Andy Smith Photography in Devon, Penn. and just recently, Love Bottle of Portland, Ore.
What exactly is a B Corp certificate?
The B stands for benefit and the B Corp certificate is awarded to a business that can prove it has a triple bottom-line, one that counts its impact on people and the planet, as well as its profits. But earning the right to add the B Corp seal to your business is not like slapping a meaningless label like “All Natural” on your product. Nobody regulates that phrase but marketers keep using it because it appeals to consumers. Getting a B Corp certification is probably more like qualifying for the official “USDA Organic” label, a more serious undertaking.
Earning a B Corp certificate is open to for-profit companies. And despite the word “Corp” in its name, the certificate does not confer corporation status. Your business can apply for B Corp certification whether it’s organized as a partnership, a limited liability company (LLC), or incorporated as a traditional C corporation. And if you do get certified, your underlying legal business structure remains the same.
Separately, many states now allow for a company to be organized as a formal “benefit corporation”, which is different from being a B Corp. A benefit corporation’s by-laws require it to consider the social and environmental benefits of its actions. It’s a more formal status than B Corp certification.
Startups can’t earn B Corp status until they have been in business 12 months but they can apply for a certification-pending seal. If your startup plans to make social responsibility a core part of its business, it makes sense to begin the certification process early.
How do you qualify as a B Corp?
First, you have to take a test, which is free. And you don’t have to make your answers public or continue any further along the path to B Corp certification after you take some or all of the test, if you don’t want to. The online assessment of your company practices and policies can take an hour or more depending on how big and complex your business is. The test asks lots of questions about your company’s impact on its employees, customers, community and the environment. You can learn more or sign-up to take the test here.
The questions you see and how they are weighted in your final score will depend on how big your business is, what industry it is in and where it is located. To qualify for certification, you have to score at least 80 out of 200 possible points.
Here is one question, an easy one, from the Diversity section: What percent of the company is owned by the following groups: women and/or individuals from underrepresented populations, including low-income communities?
If you decide to submit your assessment for certification, B Corp will evaluate your results, ask for supporting documents and set up a phone call to review your results as well as run a background check on you and the company. You’ll also have to disclose relevant fines or litigation.
How much does B Corp certification cost?
And the price is going up for some companies.
Once you are approved for B Corp certification, it costs $500 a year to maintain that status if your company’s annual revenue is under $500,000. You’ll pay $1,000 a year if revenue is $500,000 to $1.9 million. There are seven other tiers, which top out at $50,000 a year for companies with $1 billion or more in annual revenue.
Prices will go up after Sept. 1, 2016. Only companies with less than $150,000 in annual revenue will qualify for the lowest fee of $500. There will also be price hikes for bigger companies.
How long does the certification last?
After two years, you have to repeat the certification process and, if you pass, continue to pay the annual fee. To re-certify, you still need to score the minimum 80 points on the impact assessment. The idea, though, is to improve during each certification cycle, using the assessments to benchmark and track your business’s progress in meeting social and environmental goals.
If your company changes hands and wants to keep its B Corp status, it will have to re-certify within 90 days of the change.
Full-fledged benefit corporation status in the future
B Corp pushes businesses that are already set up as corporations to eventually incorporate as benefit corporations if their states allow it. If your state does, you have four years to do so after the law is in effect or two years after you get certified, whichever is later.
A benefit corporation is a more permanent and formal incorporation structure than a certification from B Corp. To become one you would have to amend your corporate governance documents to require your business to consider the impact of its decisions on its employees, community and the environment, not just its profits.
Limited liability companies and partnerships don’t have to incorporate to get certified, but they have 90 days after they get certified to include the same language in their governing documents, which are typically their member or partner agreements.
Auditing for B Corp businesses
If you go on to get certified as a B Corp, there is a chance your small business will get audited by B Corp, which says it checks up on about 10% of its certified companies each year. You have to agree to a possible on-site review/audit of your business when you sign the certification paperwork. If you fail the audit, you could lose your certification.
And because the legal framework of a B Corp allows a company to consider the social and environmental impacts of its decisions along with profits, your business could have additional liability from shareholders who could sue if they believe your business is not doing enough to mitigate those impacts.
Clearly, becoming a B Corp is not for the faint of heart. It takes a lot of work, money and commitment. It may be worth it if it lines up with your small business’s values and you want a way to prove it. And you want to reap the potential rewards in not just more profits, but also in positive social and environmental change.
Image credit: Viktor Hanacek
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