To B (Corp) Or To SPC?

SPCs? B-Corps? B-Certified? Benefit Corporations?

 

A handy chart showing comparisons of corporate structure, prepared by Andrea Sanford / SCDI

 

Chart showing comparisons of corporate structure, prepared by Andrea Sanford / SCDI.

Click here to download a PDF document comparing some corporate options.  


SPCs are different from Benefit Corporations (and the related B-Corp Certification, which is not a legal structure). Both Social Purpose Corporations and Benefit Corporations require businesses to identify and state their general social or environmental benefits with the option of one or more specific social purposes that are unique to the company and to produce an annual report in which they document progress on these goals.

If you are registering your company in Washington state, you may register as a Social Purpose Corporation, benefit corporations are not an option. Since B-Corp Certification is not a legal structure, any company may become B-Certified, including SPCs. California offers a Flexible Purpose Corporation, similar to the SPC option.

The primary differences are that SPC gives management and investors flexibility to identify the nonfinancial factors that are key to the company’s mission. SPC provides directors legal protection as they consider those factors in decision making. Annual reporting on the stated social purpose is required, however third party assessments are optional for SPCs.

Learn more about each option below.

 

What Are Corporations?

A corporation is a legal entity that is separate and distinct from its owners. Corporations have the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. The most important aspect of a corporation is limited liability. That is, shareholders have the right to participate in the profits, through dividends and/or the appreciation of stock, but are not held personally liable for the company’s debts. Filing as a Profit Corporation is $200 in Washington state.

Existing corporate law dictates that directors of corporations’ sole duty is to maximize shareholder value, which means that every decision must be made with the goal of increasing the value of the stock. When a director bases a decision on something other than maximizing shareholder value, the director faces the potential risk of a lawsuit from shareholders. This poses a problem for corporations that are seeking both a financial return as well as other objectives such as positive environmental, social or community impact. It also makes companies vulnerable to hostile takeovers that maximize shareholder financial returns but may run contrary to the core values of the business.

Corporations are subject to corporate tax on net income, dividends subject to personal income tax. In Washington state, taxes based on business entity income. Responsible parties may have liability for trust fund taxes.

  • General Corporation (C corps): unlimited stockholders, good for more than 30 stockholders or public stock offerings.
  • Subchapter S Corporation (S corps): S corps are C corps that have made an election to be taxed as a partnership rather than a corporation. This tax election may be appropriate for small business, it avoids “double taxation” at corporate level and again at personal level since all income or loss is reported only on the stockholders personal tax returns. Limited stockholders permitted, only one class of stock

 

What Are Benefit Corporations?

Benefit corporations are a legal form of incorporation mandated to operate for public benefit and to provide an increase in transparency & accountability. Benefit corporations are required to have a material positive benefit that not only creates value for the company’s shareholders, but also its community, environment, employees and suppliers, assessed from business and operations and measured against an independent third party standard. The standards must be developed by a party not related to the entity it is measuring and must be transparent in its methodology. B Labs, the Pennsylvania nonprofit that developed and promotes benefit corporation legislation also oversees the certification process for Certified B Corporations.

Specific public benefits range from providing individuals or communities with beneficial products or services, promoting economic opportunities beyond job creation, promoting health and/or environmental preservation and promoting the arts and sciences.

Benefit corporations are also required to issue annual reports against a third party standard, recording successes and failures for their general and specific benefit made available to the public four months after the close of fiscal year. As all other corporate forms, they are subject to corporate tax on net income, dividends subject to personal income tax. There is currently no tax favored status for any form of benefit, flexible purpose or social purpose corporation. Tax status remains as either a C corp or an S corp.

As of May 2013, filing as a benefit corporation is available in California, Arizona, Illinois, Arkansas, Lousiana, Pennsylvania, New York, Massachusetts, Vermont, New Jersey, Maryland, District of Columbia, South Carolina, Hawaii, Virginia. Legislation is pending in Oregon, Nevada, Montana, Colorado, Texas, Iowa, Michigan, Alabama, Georgia, Florida, North Carolina, West Virginia, Rhode Island, Connecticut and Delaware.

More information about benefit corporations can be found here.

 

What is a Certified B Corporation?

A certified B-corporation is a voluntary certification—not legal structure. It  can be applied to any legal structure of business. B Corp certification can be obtained in any state, for fees ranging from $500 to $25,000 annually depending on revenue, from B Labs, the Pennsylvania nonprofit that developed benefit corporation legislation and oversees the certification process for about 500 firms. The certification does not provide legal protection from lawsuits.

A company can receive the Certified B Corp by achieving a minimum of 80 / 200 on B Labs Assessment, which includes key language in organizing documents. Periodic assessments by B-Labs are performed and the company must publish the results of this assessment.

B-Corp certification is considered by many to be the highest standard for a social enterprise and is an excellent way to ensure a broad and thorough approach is taken to address a holistic approach to triple-bottom line impact. The certificate is best for those looking for third-party validation and external certification of social and environmental impact. It is available in all states.

Learn more at Certified B Corporation.