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The Benefits of Being a B Corporation

May 5, 2015
Small Business
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If one of the goals for your small business is to create better jobs and improve the quality of life in your community, then you may want to join the growing number of companies worldwide that have sought B-corporation status.  Becoming certified as a B corporation is a way to let investors, customers and members of your community know that your company uses best practices when it comes to sustainability.

The “B” in B corporation stands for “benefit,” and certified companies agree to benefit their community by being held to a higher standard of transparency, accountability and performance, says Amy George, co-founder of Blue Avocado, a B corporation based in Austin, Texas, that sells fashionable, reusable shopping and lunch bags. “I wanted to start a company that made being green affordable and easy,” she says. Becoming a certified B corporation is a way to show that Blue Avocado is reaching those goals, she says.

Blue Avocado (re)zip bag

Blue Avocado (re)zip bag

Before co-founding Blue Avocado, George worked as a sustainability consultant for Fortune 500 companies, helping them develop global impact reports, which show investors and customers how those large companies benefit their communities. “For a long time, there wasn’t a template like this for small business,” George says.

Now, B Lab, the nonprofit that certifies B corporations, has created a way for smaller companies to be certified by a third party to highlight their sustainability efforts, she says.  The company, which started in 2006, has certified over 1,000 companies as B corporations, in industries as varied as accounting services and waste management.  Although the certification option can be especially helpful for small businesses, it’s worth noting that many larger companies are also B corporations, including Patagonia and Ben & Jerry’s.

According to B Lab, member companies must publicly declare that they have a responsibility to benefit the interests of their employees, community and environment, as well as their shareholders.

There is generally no special tax treatment given to B corporations. You would still need to form your company as a sole proprietorship, partnership or corporation. If your company is a corporation, however, you may need to amend your articles of incorporation to show that your company considers its impact on the community in addition to shareholders.

Even though it’s not a separate business structure, about 26 states recognize the legal status of a B corporation, which can help legitimize your articles of incorporation.

Here’s how your company can join the ranks:

1. Take the quick assessment

Before you officially apply for status as a B corporation, you can go to the B Lab website and take a Quick Impact Assessment survey to see where your company stands when it comes to best practices.  Ideally, the survey would be completed by a founder, CEO or other company leader, George says.

The quick assessment is roughly 75 to 100 questions, she says, and can be finished in about 20 minutes.  Completing the survey will help you determine how close your company may be to qualifying for B-corporation status.

2. Complete a self-audit

Once you are confident that your company would be a candidate for B-corporation certification, the next step is to take a longer self-audit, called the B Impact Assessment.  This assessment typically takes about an hour and a half, though it doesn’t have to be done in one sitting, George says. She recommends, however, that a company’s leadership block out a day or so to go over the questions in the assessment, because a lot of them will involve companywide policies, which company leaders will need to discuss.  “It’s more than an audit,” George says, “it’s a strategy conversation.”

You may be asked questions about your wage structure, promotion policies and how many local suppliers you use, says Seth Gross, principal at Bull City Burger and Brewery in Durham, North Carolina. His restaurant was the first one in the state to receive B-corporation status.

“We were asked how many of our ingredients came from local farms,” Gross says, “and I’d have to gather proof to show that we are buying local, and that the majority of our ingredients come from local farms.”

You’ll also probably be asked to provide supporting documentation and other paperwork.  Gross said he provided payroll records to show that his restaurant paid fair wages, promoted from within and that, percentage-wise, management salaries were not excessively higher than other employees’ compensation.  (In many companies, CEO salaries have risen sharply while employee pay has been flat or decreased, and this has had a negative impact on the workforce).

After you turn in the self-audit to B Lab, you can expect to hear from them within a week, George says. Your answers will be examined and checked against those from other companies that also have applied to see if there are any responses that seem unusual or statistically unlikely, she says.  You may be asked to follow up and clarify some of your responses.

“It’s a lot of work, and so the reason for doing it has to be because you really want to,” Gross says. “It’s easy to just say, ‘We support local,’ but this is a way to show that you are putting your money where your mouth is.”

3. Sign the B Corp Declaration of Independence and Term Sheet

To be certified, you need to score 80 out of a possible 200 points on your audit. Once B Lab determines that your business meets that standard, you’ll be asked to sign B Corporation Declaration of Independence and Term Sheet documents.  The term for B-corporation status is two years, and after that you will need to recertify.

The fee for B-corp status is based on annual sales, with a minimum of $500. To keep certification, the company must pay a renewal fee each year and recertify every two years.

4. Spread the word and continue to support your community

You would seek B-corp status because you want to make a positive change in your community, and the work doesn’t stop with the signed declaration, Gross says. He continues his sustainability efforts by supporting organizations such as ShopLocal Raleigh and Sustain-a-Bull, which support locally owned small businesses (Durham’s nickname is Bull City).

“In our community, there is a strong grass-roots movement to buying local,” he says. “I’d recommend other business owners look for similar organizations in their communities.”

Once you have a B corporation, your efforts can be combined with these other organizations to have a bigger effect in your community, George says:  “You’re in a different group of likeminded people that deliver more than just economic impact, locally and internationally.”

For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Margarette Burnette is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @margarette and on Google+.

Top photo, from left, Amy George, Melissa Nathan, and Paige Davis.

Photos courtesy of Blue Avocado.