An Entrepreneur’s Guide to
Certified B Corporations andBenefit Corporations

This report is brought to you by
The Yale Center for Business and the Environment
and Patagonia, Inc.

About The Yale Center for Business and the Environment
The Yale Center for Business and the Environment provides a platform for generating, incubating and launching innovative action at the intersection of businessand the environment. The Center joins the strengths of two world-renowned
graduate schools—the Yale School of Management and the Yale School ofForestry & Environmental Studies—together with an extensive network of internaland external thought leaders at the business- environment interface. Driven by
student interest, we develop partnerships with a wide range of actors acrossYale (students, faculty, staff) and in the professional world (alums, companies,
NGOs, governments). Our work covers finance, entrepreneurship, marketing,operations, and strategy on issues involving energy, water, carbon, food, naturalareas and society.
www.cbey.yale.edu

About Patagonia, Inc
Founded by Yvon Chouinard in 1973, Patagonia is an outdoor apparel company
based in Ventura, California. A Certified B Corporation, Patagonia’s mission is tobuild the best product, cause no unnecessary harm, and use business to inspire
and implement solutions to the environmental crisis. Since 1985, Patagonia has
dedicated 1 percent of sales each year to environmental causes.

“B certification and/or incorporation
gives us the common tools weneed to assess the positive andnegative impacts of our practices,
make and measure improvements,and share what we learn.”­—Vincent Stanley

Director of Philosophy, Patagonia

Cover image: Tuckerman & Co creates classic workwear that is made to lastand better for people and the planet. Wherever possible, Tuckerman & Co.
uses less harmful materials over their conventional counterparts. Tuckerman& Co. is a Certified B Corporation. Photo credit Stephen Faust.

1

FOREWORD
We live in a time of social and environmental crisis, with a disturbing—anddestabilizing—degree of income inequality that creates anxiety for all but themost economically secure. Even the affluent cannot be spared anxiety about
the planet. According to E. O. Wilson, we have a 35-year window to learn how
to adapt to climate change and prevent the conversion of nature into universal­desert. To put things right will require an unprecedented level of cooperation andcivic engagement on the part of human beings. We will need responsive government; strong, engaged NGOs and nonprofits; and socially and environmentally
responsible businesses to produce our goods and services.
More than ever we need more Certified B Corps and Benefit Corporations—and,at the very least, companies that hold to similar principles.
It is not enough for business to simply make incremental improvements and use
resources more efficiently. In these times, every business should have a legitimate, clearly defined purpose. Each business must justify to its stakeholders
the legitimacy of its products or services through the lens of their social andenvironmental costs. Every business should actively benefit its employees, customers and communities—and work effectively to minimize its adverse impact onnature. B certification and/or incorporation gives us the common tools we needto assess the positive and negative impacts of our practices, make and measure
improvements, and share what we learn.
This guide serves as a comprehensive tool for those deciding whether (or how
and when) to become a Certified B Corp and/or Benefit Corporation. It is tellingthat the author, Abigail Barnes, first undertook this project while thinking throughthese questions for her own start-up. Now she
shares with other entrepreneurs the clarity she
initially sought for herself.
The challenge I would pose to the reader is toget past as quickly as possible the question ofwhether to become a B Corp and on to the how
and when. This guide maps the way.

Vincent Stanley
DIRECTOR OF PHILOSOPHY, PATAGONIA

2

CONTENTS

So you’ve decided you want to be morethan just a company. You want to havea positive impact on society, promote
corporate social responsibility, and use
the power of business for higher purposesof social good. Now you’re wondering
how this whole process works. Don’t
worry, we’ve got you covered.
The information in this article does not constitute legal
advice and is offered for informational purposes only.

Is B Certification or Benefit
Incorporation the Right
Decision for Your Company?

04

To B or Not to B: The Pros
and Cons of Becoming a
Certified B Corporation or
Benefit Corporation

07

You’re Past Debating: Tell Me
How the Process Works

10

The Unchartered Legal
Landscape of the
Benefit Corporation

12

Additional Resources

14

Endnotes15

Is B Certification or Benefit Incorporation
the Right Decision for Your Company?

B-CorpThis guide will help you navigate whether going “B” is a good fit foryour business and how to go about securing the designation.
To start, you’ll want to answer four questions:

1
2
3
4

Do you want to be a Benefit Corporation,a Certified B Corporation, or both?

Do you qualify as a Certified B Corporation
or a Benefit Corporation?

Do you have sufficient resources
and manpower?

Is your board on board?

4

AN ENTREPRENEUR’S GUIDE TO CERTIFIED B CORPORATIONS AND BENEFIT CORPORATIONS

1DO YOU WANTTO BE A BENEFITCORPORATION,
A CERTIFIED B
CORPORATION,
OR BOTH?

There are two types of “B” entities, and they areoften (mistakenly) used interchangeably. The first is
the Benefit Corporation. The second is the Certified
B Corporation.1 You can be either or both.

Benefit Corporation
A Benefit Corporation is an incorporating structure
similar to a C-Corp, sole proprietorship, partnership,
or LLC. Unlike these other entities, however, aBenefit Corporation must consider the impact of its
business decisions on all stakeholders—not justshareholders or members 2—while creating a material positive impact on society and the environment.
It is well accepted that corporate directors have afiduciary obligation to their shareholders. Over the
past few decades, corporate America has interpreted this obligation to mean profit maximization.
Known as the doctrine of shareholder primacy, thisideology has become a pillar of modern businesspractice. Under this theory, shareholder interests
stand superior to those of other stakeholders—a view that stems mostly from a few seminal
lower court decisions and economists like Milton
Friedman, whose famous article on this topic in
the 1970s heavily influenced corporate America.3
Many scholars disagree with this theory, saying that
it is more of a trend than a legal doctrine.4 They

A Benefit Corporation is anincorporating structure similar
to a C-Corp, sole proprietorship,partnership, or LLC.

would argue that case law does not necessarily
support shareholder primacy, and that emphasizing
short-term profit and prioritizing shareholder value
undermines the long-term health of the businessand erodes the social and environmental health ofthe communities in which they operate. Still others
believe that the theory only extends insofar as
it involves the sale or hostile takeover of public
corporations—in other words, a publicly traded
company must sell to the highest bidder and cannot
cite social mission or the environment as a defensive strategy for taking a lower bid.
While the answers to these questions remain
unclear, Benefit Corporations have emerged largely
in response to the doctrine of shareholder primacy,affording legal protection to companies that esteemsocial and environmental values over shareholder
returns.5 The trend has taken off since the firststates passed Benefit Corporation legislation in
2010, and 31 states have since followed suit.6
To become a Benefit Corporation, a company must
add language to its charter and articles of incorporation requiring consideration of all shareholders
and non-financial interests—e.g., community,
environment, employees and customers—when
making business decisions. Most states require
only that the company provide a “general publicbenefit,” which is broadly defined as a “material
positive impact on society and the environment,
taken as a whole, as assessed against a third-party
standard, from the business and operations of abenefit corporation.” Other states require that thecompany create a specific benefit—e.g., improve
the local education system—although this latter
requirement is optional in most states.8 Because
these definitions are rather vague, it is often thethird-party standard-setter (usually B Lab’s Impact
Assessment) that determines whether a company
has satisfied either a general or specific benefit—
although notably there is no minimum performancerequirement to incorporate as a Benefit Corporation(unlike with certification).9

community

environment

employees

shareholders

In theory, adding this benefit language to a company’s incorporating documents should afford thecompany greater legal protection when making
decisions consistent with its social mission—even
when those decisions undermine shareholder
profits. For example, if a company were to reject anunsolicited tender offer for reasons related to thecompany’s social mission, or forfeit short-term profit
gains in exchange for long-term value, the company
should theoretically be immunized from a shareholder suit or other legal repercussions.
But things get fuzzy when examining how much
legal protection this language provides.
First, not all states recognize Benefit Corporations,and the incorporating statutes for states that recognize Benefit Corporations vary. This is important.
If you’re wondering whether your state recognizes
these designations, charts summarizing the statutes
and policies for each state are available here andhere.10 Second, states that do not recognize Benefit
Corporations may have constituency statutes. Thesepermit consideration of other stakeholders, whereas
Benefit Corporations require consideration. In effect,
the Benefit Corporation took constituency statutes
to the next level, breathing new life, legitimacy, andform into the values espoused under the constituency statute.
But in states that neither recognize Benefit
Corporations nor have constituency statutes, thecase is tougher.11 Ultimately, the extent to which
the “B” structure affords a company legal protection
remains unclear. For a more detailed legal discussion, see Section IV.

Certified B Corporation

B

The second form of “B” designationis the Certified B Corporation.
B certification is the functional
equivalent of Rainforest Alliance,
LEED, or Fair Trade labels. Notably, you do notneed to be a Benefit Corporation to become a
Certified B Corporation, although you may need to
become a Benefit Corporation to remain a Certified
B Corporation.

B certification is the functional
equivalent of Rainforest Alliance,
LEED, or Fair Trade labels.
To become certified, a company must apply to
B Lab—the nonprofit organization that createdthe designation. B Lab independently evaluates
all applicant companies through the B Impact
Assessment. This survey looks at a range of metrics
in the following four categories to benchmark acompany’s social and environmental impact compared to other businesses:• Measurable Social Performance• Accountability• Transparency• Measurable Environmental Performance
Across these criteria, companies are rated ona scale of 0 to 200 based on factors like energy
efficiency, employee benefits, and corporatetransparency. A company’s score determines
whether it qualifies for Certified B Corporation. Only
companies with a score of 80 or higher are eligible.
Once approved, companies must recertify every
two years. B Lab also requires that Certified B
Corporations modify their governing documents to5

AN ENTREPRENEUR’S GUIDE TO CERTIFIED B CORPORATIONS AND BENEFIT CORPORATIONS

allow directors to consider stakeholders besides
shareholders in company decision-making. In
states that recognize Benefit Corporations, companies must incorporate as one within two yearsof becoming a Certified B Corporation to retain
certification. For states that newly recognize Benefit
Corporations, a Certified B Corporation is generally
given four years from the effective date of the­legislation to incorporate. Check here to see what
your state requires.12
In states without a constituency statute, or formal
recognition of Benefit Corporations, the company
need not amend its incorporating materials; instead,the company must enter into an agreement with B
Lab to consider all stakeholders to the maximum
extent permissible by law. 13 Whether this act has
any legal reach remains to be seen, and so thisagreement appears largely symbolic.

acquire full certification status, although no revenue
is required.15 B Lab has introduced a temporary
certification track for “start-ups,” defined as acompany that has been in operation for less than
12 months. This temporary track allows “start-ups”
to have “pending” certification status.16 Geography
is also immaterial - any private business anywherein the world can become certified.17 And to beclear, a company may be incorporated as a C-Corp
in Delaware and be a Certified B Corporation—
just as any C-Corp can also be Rainforest
Alliance Certified.
The process of incorporating—or reincorporating—as a Benefit Corporation is effectively thesame as it would be for most other corporate legal
structures (e.g., C-Corps or LLC). But, again, youmust incorporate in a state that recognizes theBenefit Corporation.18

3

DO YOU HAVESUFFICIENTRESOURCES ANDMANPOWER?

2

To become a Certified B Corporation, the company
must be for-profit (non-profits and government
agencies do not qualify).14 The company must also
have been in operation for at least 12 months tofines, and sanctions related to the company or its
partners.” 21 To remain a Certified B Corporation, acompany must recertify every two years.22

Take Etsy, for example. Etsy is a rare breed inthat it is one of the few publicly traded Certified
B Corporations. And because it is incorporated
in Delaware, a state that recognizes Benefit
Corporations, Etsy is required under its certification
status to incorporate as a Benefit Corporation
within a set timeframe. It hasn’t yet. Etsy has until
August 2017 to make that decision—or four years
since the date Delaware began recognizing Benefit
Corporations—and it remains to be seen whether
its board will agree to the switch.

Benefit Corporation (Incorporating
or Reincorporating)Fees: One-time payment between $70 and $200.23
An attorney should be involved in this process,and so legal costs may be incurred. Benefit
Corporations must also compile an annual reportthat discloses the company’s environmental andsocial impact. This process will require additional
resources.24

Certified B Corporation

Actions Required: The company must modify its
governing paperwork (e.g., articles of incorporation, bylaws) to comply with their state’s Benefit
Corporation statute. Companies must also submit
an annual report.

Fees: Annual payments range from $500 to$50,000, depending on the company’s earnings.19
If the company’s revenue is below $2m, theannual fee is $500. Fees increase commensuratewith revenue.20

4

Actions Required: To successfully complete the
B Impact Assessment requires paperwork andstaff-time—and a score of 80 or higher out of 200
on the B Impact Assessment. Companies must also
complete a Disclosure Questionnaire that considers
information involving “any sensitive practices,

The easiest time to carry out this process iswhen you—the entrepreneur—are the sole board
member.25 However, this likely means your business is very young, and probably pre-revenue.
But assuming you qualify and choose to pursue
either designation, you will want to consider theIt’s important to consider the resources and financial
investment associated with a B designation.

DO YOU QUALIFY
AS A CERTIFIEDB CORPORATION
OR A BENEFITCORPORATION?

perspectives of the current (or future) board on a
mission-driven company. Don’t forget, they are
your current (or future) bosses.

IS YOUR BOARD
ON BOARD?

6

To B or Not to B: The Pros and Cons ofBecoming a Certified B Corporation
or Benefit Corporation

B

Before we outline the pros and cons, it helps to have some historicalcontext. Broadly stated, the B designation seeks to patch a market
failure. Specifically, the status quo of profit maximization isn’t working
for employee welfare, wages, the environment, or the overall healthof the US economy. Short-term profit maximization (“Short-Termism”)
is currently the name of the game, and many are skeptical as towhether this is the appropriate measure of success.
The reason for skepticism? This so-called success often comes at a cost.
Prioritizing short-term shareholder profit can compromise a company’s long-termvalue, as measured by profits, employee and customer loyalty, and positivesocial impact.
How does the “B” designation change that? Well, there’s a difference between
Nike using recycled materials to create its attire and Nike becoming a Certified B
Corporation or Benefit Corporation. Namely, in the second case the company isheld to higher standards of accountability and transparency.
But as we’ll discuss, there are pros and cons, and entrepreneurs should
weigh both sides before becoming part of this market fix. You can’t be a “good”
company if you’re not a company at all.

7

AN ENTREPRENEUR’S GUIDE TO CERTIFIED B CORPORATIONS AND BENEFIT CORPORATIONS

These transparency requirements help separate
the “good” companies from those that merely havegood marketing departments.

Networking & Strategic Partnerships

PROS
Resiliency
One benefit of B certification is the resiliency ofthe company’s corporate structure in the wake of
economic instability. B Lab reported that Certified
B Corporations were 63 percent more likely tosurvive the 2008 recession than were companies
without the B designation.26 Since then, Certified
B Corporations have demonstrated an annual
survival rate of 90-99 percent compared to the69 percent average among small businesses
in the United States.27 Benefit Corporations andCertified B Corporations also tend to performbetter in the long term. Studies show that corporatesocial ­responsibility (CSR) is linked to financial
success, and that mission-driven companies foster
employee job satisfaction.28

Brand Identification
In an era of “greenwashing” and misleading labels,
Certified B Corporations and Benefit Corporations
help consumers identify trustworthy companies.
The certification process and impact assessments
for B certification are highly standardized, thereby
holding companies to a high level of scrutiny andensuring accountability and transparency. For
Benefit Corporations, most states require that they
file and make public an annual benefit report.29

If you become a Benefit Corporation or B certified,you join the ranks of companies like Patagonia,
Etsy, Warby Parker, and New Belgium Brewing. To
date, there are nearly 4,000 Benefit Corporations
and 2,000 Certified B Corporations in existence.30
Of the latter group, 130 industries and 50 countries
are represented.31 According to CEOs of these companies, one of the leading benefits of becoming a
Certified B Corporation is the network and strategic
business partnerships that stem from becoming
part of the B corporate tribe.32 Generally, Benefit
Corporations are also regarded as part of the Btribe, although they are not held to the same socialand environmental performance standards as theircertified counterparts.

Capital Attraction
The “B” designation attracts capital. Indeed, someinvestors and groups are explicitly partial tosocially responsible businesses, with ever-greaternumbers of investors putting money in such companies.33 Investors are watching the B trend closely,aware of the market potential. According to JP
Morgan, the market for socially responsible investing is currently estimated between $400bn and$1tn dollars, with the Millennial Generation unquestionably helping drive this growth.34 In a recent
international survey, 67 percent of respondents said
they preferred to work for socially responsible companies, and 55 percent were willing to pay premiumfor products and services from companies that committed to having a positive social and environmental
impact.35 Companies are accordingly aligning theirvalues with those of the Millennial Generation—thefastest growing demographic group—to attract andretain talent.36 And as the purchase power of theMillennial generation grows, the value of the “B
Corps” designation is only expected to increase.

Quality of Workforce
Engaged employees are 3.5 times more likely thantheir unengaged counterparts to invest personal
time in innovation and company problem solving.37
It may seem obvious, but employees work harder
if they care about their company’s work. It’s well
accepted that having low employee turnover saves
money and promotes a more skilled workforce.
On this front, B Lab lists employee engagement asa metric on its Impact Assessment. Other metrics
include salary above minimum wage, wellness
initiatives, workforce diversity and benefits, to namea few. By publishing these metrics, the company
opens itself up to scrutiny, but in so doing incentivizes strong performance in these fields.

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What would be the mostimportant benefits formy company?

Certified B Corporations and Benefit Corporations
also attract talent. By 2025, Millennials will represent 75 percent of the workforce, and studies showthat a company’s purpose and mission play a significant role in how Millennials choose ­employers.38
Additionally, schools are creating incentives toencourage graduates to work for mission-driven
companies. For example, the Yale School ofManagement, NYU Stern School of Business, andColumbia Business School all offer loan forgivenessprograms for students who work for Certified B
Corporations after graduation.39

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AN ENTREPRENEUR’S GUIDE TO CERTIFIED B CORPORATIONS AND BENEFIT CORPORATIONS

the creation and/or publication of the company’s
benefit report.43 While in theory these proceedings
ensure that company directors and officers adhere
to the benefit corporation statute’s standard of
conduct, to date no Benefit Corporation has been
involved in a benefit enforcement proceeding.
Additionally, perhaps in response to concerns ofadded scrutiny, annual reporting compliance stands
at below 10 percent.44 Further, unless the company’s
bylaws state otherwise, neither the board nor the
corporation is liable for monetary damages if acompany fails to carry out its requirements underthe benefit corporation statute.45

CONS

Additional Resource Commitment

Heightened Level of Scrutiny

The amount of time and resources spent oncertification and/or incorporation depends on
several factors.

One drawback of the B designation—which could
also be construed as a positive—is heightened public scrutiny. Some studies have shown that social
activists are more likely to target mission-driven
companies as bad actors than their mission-lesscounterparts40—the rationale being that these companies are holding themselves out as ethical andmoral pioneers, thereby inviting greater scrutiny.
Efforts to enhance a company’s reputation in corporate social responsibility (CSR) can ironically lead tohostility from its biggest proponents. For example,
you may have read recently about the accusations
that Etsy is using a “Double Irish” corporate tax
structure to dodge US taxes.41 The accusations,which appear to be without merit, have nonethelesscreated a PR headache at Etsy headquarters, aCertified B Corporation and business leader in CSR.
Additional scrutiny can also come from within. A
shareholder of a Benefit Corporation owning 2
percent of the company can bring what’s called abenefit enforcement proceeding if the company, its
directors, and/or its officers fail to follow the general public benefit requirement.42 This proceeding
can be used to compel a Benefit Corporation totake specific action in furtherance of its generalor specific public benefit, and potentially force

It can take months—and in some cases years—to
become a Certified B Corporation, and the amountof time hinges heavily on whether a company
already had a system in place to measure its socialand environmental impact. If the company has beenin operation for a relatively long period of time, itwill have to spend more time gathering and compiling documentation to corroborate responses in the
B Lab Impact Assessment. Regardless of the stageof the company, certification will invariably add
some level of administrative work. It is important
for a company to assess whether it has sufficient
bandwidth to take on the additional work. On thefinancial side, the fee directly corresponds with acompany’s annual revenue.

Potential Threat to Near-Term
Shareholder Profit
If someone promised you either $1 million tomorrow or $10 million in five years, which would you
choose? As an entrepreneur, your success isconstantly measured by how quickly you can turna profit and by the amount of profit you generate.
Investors care about exit strategy, timeline, financial projections and, ultimately, getting their money(and then some) back.

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What potential challenges
could my company face?

Venture firms know that only about one in ten of
their investments—after vetting hundreds—will actually realize returns. For the gamble to work, they’regenerally looking for a quick exit and big multiples.
If only this math worked out for the American economy, the environment, and social good. It turns outthat this approach doesn’t translate into corporatesocial responsibility. In fact, it promotes the opposite behavior—think outsourcing jobs, lower wages,
and lower quality goods.
Say you decide that your cost of goods needs tobe higher in order to afford paying your employees
a living wage, and you know your product will
still thrive, but the increase may cut into investor
margins. Will your investors support this decision?
Maybe you decide that foregoing higher margins
will result in a better product, happier workers,
and the company’s long-term success. These areimportant questions for entrepreneurs to consider,as they involve managing investor expectations
and communicating why thinner margins in certain
cases are a smarter business decision.

For Benefit Corporations, the process is relatively
straightforward: either file as a new entity, which
would require the same amount of time andresources as filing for any other legal structure,or the company must reincorporate as a Benefit
Corporation. The latter will likely take longer, andwill largely turn on how long the company has
existed and the legal costs associated with corporate restructuring.

9

You’re Past Debating:Tell Me How the Process Works
B Corp Certification
STEP 1: B Lab Impact Assessment
STEP 2: Assessment Review Call
STEP 3: Supporting Documentation
STEP 4: Amend Articles of Incorporation
STEP 5: Sign Declaration of Interdependence
STEP 6: Ongoing Requirements

Benefit Corporation
STEP 1: Make Sure Your State Recognizes Benefit
Corporations
STEP 2: Articles of Incorporation & Accompanying
Paperwork
STEP 3: Annual Reporting Requirements

10

AN ENTREPRENEUR’S GUIDE TO CERTIFIED B CORPORATIONS AND BENEFIT CORPORATIONSB CORP
CERTIFICATION
Any private company can become B Corporation
certified, anywhere in the world. To date, there
are Certified B Corporations in 50 countries worldwide.46 The B trend has been catching on quickly,
both domestically and abroad.
Below is a general overview of how the certification
process works.

STEP 1: B Lab Impact Assessment
An evaluation comprised of 180 – 200 questions—with some questions weighted more heavily thanothers—is administered to determine the company’s social and environmental impact. You willneed to score 80 out of a possible 200 points tobecome certified.

STEP 2: Assessment Review Call
A B Lab staffer will get in touch with your company
to verify the accuracy of your responses on theassessment.

STEP 3: Supporting Documentation

language to have any legal significance, the incorporating state must either recognize the Benefit
Corporation or have a constituency statute—­ideally both. In states without either, this language
is largely symbolic.

STEP 5: Sign Declaration ofInterdependence
The final step in becoming a Certified B Corporation
is signing a three-page pro forma document thatconsists of a Term Sheet and the Declarationof Interdependence. This document details theconditions and expectations of certification, with anemphasis on the underlying purpose of becoming
certified. For a copy of the document, click here.

STEP 6: Ongoing Requirements
The company must pay the annual certification
fee—based on annual revenue—and recertify
every two years. Additionally, companies must
maintain and update the company’s supporting
documentation, as B Lab randomly selects 10
percent of Certified B Corporations for an annual
on-site annual i­nspection.49 Certified B Corporations
must maintain a public profile on B Lab’s website,
but need not submit an annual report—unlike
Benefit Corporations.

The company will be asked to provide supporting documentation for 8 to 10 randomly
selected responses on heavily weighted
questions. Companies are also asked to fill out
the Disclosure Questionnaire which examines
the company’s litigation history among otherareas of potential concern.47

B Lab offers guidance on how to incorporate
for each state here. Because the process varies
depending on the state you file in, the three-stepprocess outlined below should be used as a supplemental guide and overview of how the process
generally works.

Recognizes Benefit Corporations

Click here to find out.

STEP 2: Articles of Incorporation &Accompanying Paperwork

If you are creating a new entity, you are going toapproach this process in the same way you would
any other entity. However, you would need toinclude language stating that the purpose of thecorporation is to create a general public benefit,
and/or a specific public benefit, depending on thestate in which you’re incorporating. Some states,
like Connecticut and Oregon, have made theprocess incredibly easy, and allow entrepreneurs
to simply check a box on the incorporation forms
to elect Benefit Corporation status. If you are an
existing entity, you would amend your governing
documents (e.g., articles of incorporation andbylaws) accordingly. To see what the model Benefit
Corporation language looks like, click here.

Requirements

B

Incorporation

standard be applied, and Benefit Corporations arealso not subject to third-party audit or review.50
This distinction in reporting requirements is one of
the leading distinctions between certification andincorporation. Certified B Corporations, alternatively,
must comply with the B Lab Impact Assessment. With
the exception of Delaware, Benefit Corporations
must make these reports publicly available.51 And
as previously noted, annual reporting compliance ofBenefit Corporations is below 10 percent.52

STEP 1: Make Sure Your StateSTEP 3: Annual Reporting

STEP 4: Amend Articles of
The company must then amend its articles of incorporation with language that allows the company’s
directors to consider the impacts of any businessdecision on all stakeholders and reflect the company’s mission-driven commitment. In most states,
companies have one year following certification
to amend their articles of incorporation.48 For thisBENEFITCORPORATION

In most states, Benefit Corporations are required to
publish an annual Benefit Report, which provides
information about the company’s social andenvironmental impact. This report must include theresults of a third-party assessment of the company’s social and environmental impact, though notnecessarily the B Lab standard. Unlike the reportsof Certified B Corporations, Benefit Corporation
reports do not require that a specific third-party

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Steps for B Corp Certification
1. B Lab Impact Assessment
2. Assessment Review Call
3. Supporting Documentation
4. Amend Articles of Incorporation
5. Sign Declaration ofInterdependence
6. Ongoing Requirements

Steps for Benefit Corporation
1. Make Sure Your State Recognizes
Benefit Corporations
2. Articles of Incorporation &Accompanying Paperwork
3. Annual Reporting Requirements

11

The Unchartered Legal Landscapeof the Benefit Corporation
Unlike most business entities, the Benefit Corporation is relatively
new, and so the law surrounding these nascent structures is not wellestablished. As a result, the extent to which the B designation andconstituency statutes can preserve a company’s social mission is
unclear. This section summarizes the current state of the law to better
present the legal landscape when it comes to running a Certified B
Corporation or Benefit Corporation.
To start, let’s first discuss the Business Judgment Rule. Every entrepreneur
should know this rule, as it is a well-established legal standard in corporate law.
This rule affords corporate directors protection against liability if they make an
informed decision in good faith that they believe is in the best interest of thecompany. That’s it, plain and simple.
Now the case law. Don’t start skimming—this is the good stuff.
How much legal protection do constituency and benefit corporation statutes
really afford? The four most instructive cases on this point are Unocal Corp. v.
Mesa Petroleum Co. (1985),53 involving a hostile corporate takeover, Revlon, Inc.
v. MacAndrews & Forbes Holdings, Inc. (1986),54 involving a corporate sale, andeBay Domestic Holdings, Inc. v. Newmark (2010),55 rejecting corporate culture
as a defense in refusing a company’s sale.56 Finally there’s Dodge v. Ford
(1919),57 which held that a “business corporation is organized and carried on
primarily for the profit of the stockholders.” But don’t get discouraged bythat language, or by the holdings in these cases, because this is how
the legal system works. Cases start in the lower courts and work their
way up through the higher state courts, then to the federal courts,
and finally Supreme Court. The law changes over time and Benefit
Corporations are very young.

12AN ENTREPRENEUR’S GUIDE TO CERTIFIED B CORPORATIONS AND BENEFIT CORPORATIONSFirst, all but one of these cases—Dodge v. Ford,a Michigan case - came out of Delaware, a state
recognized as a leader in corporate law. As aresult, the Delaware decisions arguably have more
corporate legal clout than Dodge; but they’re all
still state courts decisions. And for those who needa quick refresher, the case law of one state is notbinding in another state. It is also worth noting that
corporate law is largely a creature of the state, andso the cases that will matter the most will likely
come out of state supreme courts.

LEADING CASE LAW
Unocal Corp. v. Mesa
Petroleum Co.
In Unocal, Mesa tried to purchase Unocal through ahostile takeover, and Unocal said, Yeah no thanks,
we’d rather go with someone else. Mesa sued. No
shock there. From this case, the court created a
two-part test for hostile takeovers, which is relevantfor Benefit Corporations. Under the Unocal test, aboard must 1) have reasonable grounds to believethat a danger to its corporate policy and effectiveness exists; and 2) that any defense measure
adopted is proportionate to the threat posed. The
court further added that during hostile takeovers,
corporate directors have an “enhanced duty” underthe business judgment rule to show that a company’s actions are in furtherance of the company’s
welfare. That’s the Unocal test.

applied the Unocal standard and concluded that acompany’s unique corporate culture, by itself, fails
the test. However, they kept the door ajar, notingthat there may be “instances in which the law mightrecognize as valid a perceived threat to a ‘corporate culture’ that is shown to be palpable (for lackof a better word), distinctive and advantageous.”
No court decisions have further defined protected
corporate cultures or what this threat to corporate
culture would look like.

Revlon, Inc. v. MacAndrews &Forbes Holdings, Inc
In Revlon, the courts basically said, Once the company is for sale, take the highest bid. In this case,the court accused the seller of “playing favorites,”
holding that “market forces must be allowed tooperate freely to bring the shareholders the bestprice available for their equity.” You’re probably
thinking, Benefit Corporations are doomed. Not
so fast. When Revlon was decided in Delaware,
the state had neither a constituency statute nor abenefit corporation statute in place. If they had,the outcome may have been different.

eBay Domestic Holdings, Inc.
v. Newmark
Both Revlon and Unocal are relatively old cases,
and new case law is generally more representative of the legal landscape, so let’s talk about amore recent one. This case comes out of a lower
Delaware court (Court of Chancery) than the priortwo, and so it doesn’t carry as much legal weight,
but it’s out of a Delaware court nonetheless. In
eBay Domestic Holdings, Inc. v. Newmark (Del2010), eBay sued craigslist. eBay, a minority
shareholder, wanted to acquire greater controlof craigslist. Craigslist blocked the tackle. In its
defense, craigslist said that eBay’s additional control “would fundamentally alter craigslist’s values,
culture, and business model, including departingfrom [craigslist’s] public-service mission in favorof increased monetization of craigslist.” The court

certainly possible, however, that Ben & Jerry’s could
have won the case on other legal arguments andinvoked Vermont’s constituency statute. Notably,
after Unilever’s acquisition, Ben & Jerry’s became a
Certified B Corporation.58
Now, had Ben & Jerry’s rejected Unilever’s offer andgone to court, the outcome of the case would haveshed more light on the question of how far companies can go to protect their social mission. It’s worth
pointing out that in this corporate bid a Goliath wastrying to buy a Goliath. But what about the Davidsof the world? They likely wouldn’t have the optionof fighting Unilever in court. And so the real legal
questions will likely follow from behemoths like
Walmart trying to purchase B-hemoths like Etsy.
Stay tuned.

Unilever and Ben & Jerry’s
Finally, back in 2000 Unilever sought to acquire
Ben & Jerry’s. Unilever was the highest bidder,and ultimately acquired Ben & Jerry’s in that year
for $326 million. Had Ben & Jerry’s decided toinstead sell to a lower bidder whose interests andcorporate values perhaps better aligned theirs, a
protracted legal battle would have likely ensued.
Given the choice between spending your first yearsof retirement in a courtroom, versus kicking it backin the foothills of Vermont eating Chunky Monkey,
you’d probably take the latter option too. And
despite Vermont having a constituency statute at
the time, the decisions in Unocal and Revlon were
not favorable to Ben & Jerry’s case. Their lawyers
likely advised them to take the highest bid. It’s

13

AN ENTREPRENEUR’S GUIDE TO CERTIFIED B CORPORATIONS AND BENEFIT CORPORATIONSADDITIONAL RESOURCES
There is a considerable amount of misinformation out there on Benefit
Corporations and Certified B Corporations. For this reason, we’ve put together
a curated list of reading materials (in no particular order) for those that want to
dig deeper. Many of these materials were used to complete this guide.
• Elizabeth Schmidt, Nonprofit Law: The Life Cycle of the Charitable
Corporation, 2nd Edition (Wolters Kluwer 2016).
• J. Haskell Murray, Social Enterprise Innovation Delaware’s Public Benefit
Corporate Law, Harvard Business Law Review, available at http://www.hblr.
org/wp-content/uploads/2014/10/4.2-3.-Murray-Social-Enterprise-Innovation.
pdf (2014).
• Benefitcorp.net• Model Benefit Corporation Act (June 2014).
• Lynn Stout, The Shareholder Value Myth: How Putting Shareholders First
Harms Investors, Corporations, and the Public (Berrett Keohler 2012).
• Ryan Honeyman, The B Corp Handbook: How to Use Business as a Force for
Good, (Berrett Keohler 2014).
• Milton Friedman, The Social Responsibility of Business is to Increase its
Profits, NY Times (Sept. 13, 1970).
• Leon Neyfakh, Is ‘Shareholder Value’ Bad for Business?, Boston Globe (Aug.
3, 2014).
• Michael Porter and Mark Kramer, Creating Shared Value, How to Reinvent
Capitalism and Unleash a Wave of Innovation and Growth, Harvard Business
Review (Jan-Feb 2011).
• Courtney Emerson, Delaware’s Public Benefit Corporations: Comparative
Analysis and Fiduciary Duties, SSRN (December 2013).
• J. Haskell Murray, An Early Report on Benefit Reports, SSRN (October 2015).
• eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1 (Del. Ch. 2010).
• Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. 506 A.2d 173 (Del. 1986)• Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).
• Dodge v. Ford Motor Company, 170NM 668 (Mich. 1919).

About the author
Abi Barnes is the CEO & Co-Founder of Allergy Amulet, Inc. She has written
extensively on social, political, and environmental issues, and has been published in several well-known periodicals and academic journals, including The
Atlantic and Forbes. She is a graduate of Vermont Law School, the Yale Schoolof Forestry & Environmental Studies, and Kenyon College.
Photo taken in front of the Chouinard Equipment blacksmith shop, where
Patagonia first took root.

Acknowledgements
A special thanks to Patagonia, the Yale Center for Business and theEnvironment, Vincent Stanley, Stuart DeCew, Cassandra Walker Harvey,
Joshua Galperin, Todd Cort, Betsy Schmidt, and James Woulfe.
The graphic design was created by Henk van Assen, Senior Critic at Yale
University School of Art, together with Kelly Bryan and Igor Korenfeld,
Designers at HvADesign.

14

AN ENTREPRENEUR’S GUIDE TO CERTIFIED B CORPORATIONS AND BENEFIT CORPORATIONSENDNOTES
1. There are various derivatives of
the Benefit Corporation, although they
are sometimes used interchangeably,
including: Public Benefit Corporation(Delaware, Colorado), Social Purpose
Corporation (Washington, Florida,
California), and Benefit LLC (Maryland).
2. Owners of corporations are calledshareholders, whereas owners of LLCs
are called members.
3. Milton Friedman, The Social
Responsibility of Business is to Increase
its Profits, N.Y. Times (Sept. 13, 1970).
Friedman’s work also contributed heavily
to the “Chicago School of Economics”
movement, which rejected Keynesian
economic thought and emphasized freemarket principles.
4. For a more in-depth discussion on
this countervailing position, see Lynn
Stout, The Shareholder Value Myth:How Putting Shareholders First Harms
Investors, Corporations, and the Public(2012).
5. The legal predecessor to the
Benefit Corporation is the constituency
statue, which has been around for
decades. Most constituency statutes
were introduced into law in the 1980s in
response to the corporate merger andacquisition craze. Constituency statutes,
while varying in scope, state that corporations may consider stakeholders’interests other than shareholders incompany decision-making. Notably,such decision-making was arguably
permissible under a separate legal theBusiness Judgment Rule before constituency statutes emerged. The Business
Judgment Rule is a long-standing legal
standard where courts will make thepresumption that corporate directors
have acted on an informed basis, ingood faith, and in the honest belief
that the action taken was in the bestinterest of the company. Constituency
statutes took this rule to the next level,
affording corporations greater legal

protection when considering stakeholders’ interests before shareholder profit incorporate decisions.
6. The country of Italy also recognizes
Benefit Corporations. State by State
Status of Legislation, BenefitCorp.Net,
http://benefitcorp.net/policymakers/
state-by-state-status (last visited Oct.
23, 2016); Italian Parliament Approves
Benefit Corporation Legal Status,
BCorporation.EU, http://bcorporation.eu/
blog/italian-parliament-approves-benefit-corporation-legal-status (last visited
January 26, 2017).
7. How Do I Create General Public
Benefit, BenefitCorp.Net, http://
benefitcorp.net/businesses/how-do-i-create-general-public-benefit (last visitedJune 18, 2016).
8. Only Delaware and Colorado requirethat a company identify a “specific benefit.” In Minnesota, companies have theoption of electing to be a General Public
Benefit Corporation or a Specific Benefit
Corporation—and the trend appears to
be towards the latter.
9. Certified B Corporations mustsatisfy B Lab’s third-party standard,
whereas Benefit Corporations cansatisfy any third-party standard, but it
is not required—this requirement varies
by state. It is worth noting that withrespect to Benefit Corporations, B Lab’smodel legislation states as follows:“Government has no role in determining
whether a selected third party standard
is acceptable or whether the benefit corporation has met its benefit corporation
purpose to create a material positive
impact; Benefit [C]orporations are notrequired to adopt a specific third party
standard; and Benefit [C]orporations are
not required to be audited or certified byany third-party standards organization.”
How Do I Pick a Third-Party Standard?
BenefitCorp.Net, http://benefitcorp.net/
businesses/how-do-i-pick-third-partystandard (last visited June 29, 2016).

10. J. Haskell Murray, Corporate Formsof Social Enterprise: Comparing the State
Statutes, https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=1988556 (Jan.
15, 2015); Christopher Wirth, Benefit
Corporation Reporting Requirements,
Drinker, Biddle & Reath, LLP, http://benefitcorp.net/sites/default/files/Benefit%20
Corporations%20Chart.pdf (June 10,2015).
11. Corporation Legal Roadmap,
BCorporation.Net, https://www.
bcorporation.net/become-a-b-corp/howto-become-a-b-corp/legal-roadmap/
corporation-legal-roadmap (last visitedJune 23, 2016) (noting that in states
where there is no constituency statuteor benefit corporation statute, “the best
[B Lab] can do [] is [] build the languageof the [Benefit Corp] legal framework
into your Term Sheet for B Corp
certification.”).
12. “[C]ompanies must elect benefit
corporation status within four years of
the first effective date of the legislationor two years [] [after] initial certification,
whichever is later.” Id.

in that other state, the court would likely
follow the law of the state in which thecompany incorporated, citing the “internal affairs” doctrine.
19. Benefit Corporations & Certified
B Corps, BenefitCorp.Net, http://
benefitcorp.net/businesses/benefit-corporations-and-certified-b-corps (last visited
Nov. 19, 2016); Certified B Corps & Benefit
Corporations, BCorporation.Net, https://www.bcorporation.net/what-are-b-corps/
certified-b-corps-and-benefit-corporations (last visited Nov. 19, 2016).
20. Id; Term Sheet for B Corporations,BCorporation.Net, available at https://www.bcorporation.net/sites/all/themes/
adaptivetheme/bcorp/pdfs/2012_term_
sheet_non-constituencynon-benefitsub.
pdf (last visited Nov. 19, 2016).

28. Cliff Zukin & Mark Szeltner, Net
Impact and Rutgers University, Talent
Report: What Workers Want in 2012;
Net Impact, available at https://www.
netimpact.org/sites/default/files/documents/what-workers-want-2012.pdf (May2012); Eccles, Robert G. Ioannis Ioannou& George Serafeim, The Impact of a
Corporate Culture of Sustainability on
Corporate Behavior and Performance,
Harvard Business School, available athttps://hbr.org/2016/03/founder-led-companies-outperform-the-rest-heres-why(2011).

21. Performance Requirements,
BCorporation.Net, https://www.
bcorporation.net/become-a-b-corp/
how-to-become-a-b-corp/performance-requirements (last visited January 30,2017).

29. Most states require that companies
make these reports publicly available—
only Delaware and Minnesota do not.
However, there is no penalty currently
for a company that fails to make its
report publicly available.

22. Id.

30. Find a Benefit Corporation,
BenefitCorp.Org, http://benefitcorp.
org/businesses/find-a-benefit-corp (lastvisited June 26, 2016); BCorporation.Net,
https://www.bcorporation.net (last visited
Dec. 19, 2016).

13. Id.
14. What are B Corps, BCorporation.Net,
https://www.bcorporation.net/what-are-bcorps (last visited Nov. 21, 2016).
15. Steps for Start Ups, BCorporation.
Net, https://www.bcorporation.net/
become-a-b-corp/how-to-become-a-bcorp/steps-start-ups (last visited Nov. 21,
2016).
16. Id.
17. Id.
18. Notably, if a company incorporates
in a state that recognizes Benefit
Corporations or has a constituency statute, but primarily carries out business inanother state and is subsequently sued

27. Dermot Hikisch, Values-based
Businesses Demonstrating Resilience,
TriplePundit.com, http://www.triplepundit.
com/podium/values-based-businesses-demonstrating-resilience/ (Aug. 242013).

23. Benefit Corporations & Certified B
Corps, supra note 19.
24. Notably, the compliance rate on
Benefit Corporation submitting thisannual report is less than ten percent.
See generally J. Haskell Murray, An Early
Report on Benefit Reports, SSRN (2015),
available at http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=2682709.
25. LLCs, unlike C-Corps, are notrequired to have a board of directors andits management structure varies.
26. Ryan Honeyman, The B Corp
Handbook: How to Use Business as a
Force for Good, 16 (2014).

31. Id.
32. Honeyman, supra note 25.
33. Benefit Corporations Raising Capital,
BenefitCorp.Net, http://benefitcorp.net/
benefit-corporations-raising-capital (lastvisited June 18, 2016).
34. JP Morgan & Rockefeller
Foundation, Impact Investments: An
Emerging Asset Class, https://www.
rockefellerfoundation.org/report/

impact-investments-an-emergingasset-class/ (Nov. 29, 2010); Morgan
Stanley, Sustainability Throughthe Eye of the Investor, http://www.
morganstanley.com/ms-articles/sustainability-in-the-eye-of-the-investor/(Feb. 27, 2015).
35. James Woulfe & Emma Sifre, Social
Enterprise Law Working Group Policy
Recommendations & Explanations,
https://www.cga.ct.gov/ba/CTLCBL/docs/
Soc.%20Ent.%20Law%20Report.pdf.
36. Goldman Sachs, Report, available at
http://www.natcapsolutions.org/businesscase/GoldmanSachsReport_v2007.pdf(2007).
37. Chris Zook, Founder-Led Companies
Outperform the Rest—Here’s Why,
Harvard Business Review, https://hbr.org/2016/03/founder-led-companies-outperform-the-rest-heres-why(March 24, 2016).
38. Big Demands and High Expectations:
The Deloitte Millennial Survey,
Deloitte, http://www2.deloitte.com/
content/dam/Deloitte/global/Documents/
About-Deloitte/gx-dttl-2014-millennial-survey-report.pdf (January 2014).
39. Loan Forgiveness Program, Yale
School of Management, http://som.yale.
edu/programs/mba/admissions/financing-your-mba/loan-forgiveness; Loan
Assistance Program, NYU Stern School ofBusiness, http://www.stern.nyu.edu/sites/
default/files/assets/documents/2015%20
LAP%20Application%20FINAL.pdf; Loan
Assistance Program, Columbia Business
School, http://www8.gsb.columbia.edu/
socialenterprise/careers/loanassistance(it is unclear why Benefit Corporation is
also not listed as a qualifying entity for
Yale or NYU—Columbia’s loan forgiveness program, alternatively, includes“social purpose for-profit ventures orbusinesses.”).

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AN ENTREPRENEUR’S GUIDE TO CERTIFIED B CORPORATIONS AND BENEFIT CORPORATIONS

40. Jeff John Roberts, Nice Firms
Finish Last? Etsy Tax Woes Shows Why
Doing Good is a Drag, http://fortune.
com/2015/09/29/etsy-tax-woes/ (Sep. 29,2016); Good Firms, Good Targets: The
Relationship Between Corporate Social
Responsibility, Reputation, and Activist
Targeting, SSRN, http://papers.ssrn.com/
sol3/papers.cfm?abstract_id=2079227(June 1, 2012).
41. Alex Barinka & Jesse Drucker,
Etsy Taps Secret Irish Tax Haven andBrags About Transparency at Home,
Bloomberg, http://www.bloomberg.
com/news/articles/2015-08-14/
etsy-taps-secret-irish-tax-havenand-touts-transparency-at-home(Aug. 12, 2015).
42. Elizabeth Schmidt, Nonprofit
Law: The Life Cycle of the Charitable
Corporation, 2nd Edition (Wolters
Kluwer 2016).
43. Id. See generally J. Haskell Murray,
Social Enterprise Innovation: Delaware’s
Public Benefit Corporation Law, Harvard
Business Law Review, available
at http://www.hblr.org/wp-content/
uploads/2014/10/4.2-3.-Murray-Social-Enterprise-Innovation.pdf (2014).
44. J. Haskell Murray, Understanding
and Improving Benefit Corporation
Reporting, http://www.americanbar.org/
publications/blt/2016/07/04_murray.html(July 2016).

47. Performance Requirements, supranote 21.

Notes

48. Corporation Legal Roadmap, supranote 11.
49. Performance Requirements, supranote 21.
50. How Do I Pick a Third Party
Standard? BenefitCorp.Net, http://
benefitcorp.net/businesses/howdo-i-pick-third-party-standard (lastvisited Dec. 16, 2016); Frequently Asked
Questions, BenefitCorp.Net, http://benefitcorp.net/faq (last visited June 27, 2016).
51. Id.
52. Murray supra note 43.
53. Unocal Corp. v. Mesa Petroleum Co.,
493 A.2d 946 (Del. 1985).
54. Revlon, Inc. v. MacAndrews & Forbes
Holdings, Inc. 506 A.2d 173 (Del. 1986).
55. eBay Domestic Holdings, Inc. v.
Newmark, 16 A.3d 1, 30 (Del. Ch. 2010).
56. Technically, this case involved blocking a minority shareholder in an effort
to prevent them from ever becoming amajority shareholder and thereby controlling corporate culture.
57. Dodge v. Ford Motor Company,
170NM 668 (Mich. 1919).

45. Murray supra note 43 at 362.
46. See generally Business as a Forcefor Good, BCorporation.Net, https://www.bcorporation.net (last visited June29, 2016).

58. Ben & Jerry’s Joins the B Corp
Movement, http://www.benjerry.com/
about-us/b-corp (last visited Oct.
23, 2016).

16