Image source: 3blmedia.com
B Corporation is a type of company formation structure mandated to solve specific problems which are social and environmental in nature. Just like the other common corporation’s structures considered: S Corp and C Corp, B Corp is a new type of organization structure that allows you to create an effective unified brand. Before forming this type of company, consider the following pros and cons.
1. Built-in requirements: B Corp formation has built-in mechanisms that must be followed and they dictate the direction of the company. The set standards must be met on social and environmental performance.
2. Effective marketing tool: B Corp acts as a marketing tool since it increases the credibility of the firm based on the cause it is supporting. The consumers will be able to trust your company since they know you take your missions are supported by facts.
3. Brand identity: Due to transparency and accountability, consumers trust the products of the company, and this builds the brand authority of the company.
4. Shared resources: Once B Corps are formed, numerous member resources are at their disposal. This allows networking with similar business owners who work towards the achievement of a common objective. It brings a mutual benefit to the corporations for sharing resources.
5. Involvement of others: B Corps qualify for 501c3 status that enables them to create and maintain a cause in the local community. Many people are willing to support the company’s mission and their contributions to the cause may be tax-deductible.
6. Freedom to provide benefits to society: B Corp exists to provide greater benefits to the public rather than profits to the shareholders. Their legislation allows them to consider the needs of society and employees in conjunction with their desire to make a profit.
7. Capital attraction: Due to the credibility and transparency of the corporation, many investors both locally and foreign want to invest in the company, not just for profit but to have a social impact on the world.
8. Great satisfaction: B corps create an emotional experience for the customers who purchase products that have an impact on them. The founder is satisfied that the business plays a key role in global success.
9. Quality workforce: B Corps attracts a talented workforce and the company mission and purpose play a significant role in the engagement of the workforce in the workplace.
10. Resilience: The company’s corporate structure has contributed to its long-term success. Corporate social responsibility and mission-driven status are linked to the financial success of the company.
1. Hard to maintain the accountability of the corporation: A third-party audit can wrongly judge the decisions you make for the benefit of the corporation and this can strip away your B Corp status.
2. Accessibility: B Corp is a new business formation process and it’s not available in every state. Before filling out the articles of incorporation, you need to check with the local state authority whether it is available. Some states may need you to form S Corp first then file for 501c3 status in order to transition to B Corp.
3. Depends on how good you make the corporation: If you’re able to maintain the B Corp status through random audits and transparency, then you will have the success of the corporation. If you fail to keep true to the stated mission, you can lose your certification and the created business network.
4. Public scrutiny: The Corporation is required to publish a report on its performance in providing public benefits. The report allows the shareholders and the public to evaluate whether the company meets the set requirements.
5. B Corps are new to the business world: Only time will tell how entrepreneurs will handle the uncertainties that exist in the business.
6. No corporate tax benefits: You are required to pay the same taxes as other organizations unless you have tax-exempt status for the corporation. The status does not give you any additional tax benefits.
7. Additional resource commitments: A lot of time and resources are needed to incorporate the B Corps.
8. The threat to near-term shareholder profit: Meeting the investors’ expectations may make the business managers and directors act unethically in meeting the needs of the public and employees.
9. Impact on all business participants: When making the decision, the directors must consider its impact on shareholders, employees, suppliers, customers, and the community at large which may be difficult to satisfy the needs of all.
10. Administrative and legal costs: There are annual administration and a legal fee associated with B certification.