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B Corp ABCs with Matthew May, Partner at Cherry, Bekaert & Holland, L.L. P.

Matthew May, Partner at Cherry, Bekaert & Holland, L.L.P.

We’ve heard a bit of a buzz around Benefit Corporations and the business of getting B Corp certified. Some of the information was confusing and the more we researched, the more complicated things got. So we spoke with Matthew May, CPA, of Cherry, Bekaert & Holland, L.L.P. to get the real facts.

VA: What are the advantages for a start-up applying for Benefit Corporation (Benefit Corp) status?

Benefit Corps are going to attract a distinct kind of investor to a new start-up. Much like mutual funds that focus on investing in companies that meet specific social or ethical guidelines are gaining traction, Benefit Corps are a similar vehicle for a start-up.

VA: What is the difference between a Benefit Corp and a B Corp certification?

A Benefit Corp is a state government legal corporate structure. It is a way to legally structure a company much like an LLC, S-Corp or C-Corp. B Corp is a certification offered by a non-government entity called B Lab. There is no state mandate.

VA: What are the first steps for a start-up to take if they are considering Benefit Corp status?

Benefit Corp status is currently only available in California, Hawaii, Maryland, New Jersey, Vermont and Virginia. If you are in interested in setting up a Benefit Corp in these states, it is a good idea to seek an advisor who understands those individual states’ laws. Until one state’s rules become the “standard”, there will be nuances in every state that you have to consider.

VA: What are the first steps toward becoming B Corp certified?

If you want a B Corp certification, then you need to make a declaration and be certified by B Lab. The process varies depending on where your company is headquartered and your company’s corporate legal structure. B Lab offers a comprehensive website to help any company interested in certification navigate the process with simple drop down menus.

However, the certification process through B Lab doesn’t affect your legal entity structure from a tax perspective.

VA: How extensive is the Assessment phase in the B Corp certification process?

The initial process is not that extensive. Details are available at the B Lab website.

After the assessment though, you must be willing to 1) change your Articles of Incorporation, 2) submit to an on-site review if B Lab selects your company for review (approximately 20 percent of companies are selected for on-site reviews) and 3) pay your annual fee (based on revenues).

VA: From a financial perspective, how do Benefit Corps or B Corps perform in the market place?

As this is still an immature market, there is insufficient data from which to draw conclusions. However, investors that are evaluating B Corps or Benefit Corporations ought to review standard financial metrics as well as the company’s social impact.

VA: How many states recognize Benefit Corp status? How many states are considering it?

Six states (California, Hawaii, Maryland, New Jersey, Vermont and Virginia) each have their own variation of Benefit Corporation status. New York is also considering the status.

I expect that most states are watching to see what Delaware and the other C-Corp friendly states do. Delaware still has the critical mass of C-Corp formations in the U.S.  For better or for worse, states have conformed to Delaware’s rules for C-Corp, so until Delaware makes a move in this area, companies will have to navigate the individual state standards for the nuances.

However, the B Corp certification is open to anyone who applies for it at B Lab. A B Corp certification will have no impact on your tax status, in fact you could have an LLC or a C-Corp and still apply for the certification, without changing that structure. So the certification process really has very little to do with your corporate tax planning strategy and is much more about how you want to be perceived in the market (by customers, investors, etc.).

VA: What trends do you see for social entrepreneurship? Is it becoming more mainstream?

In the last 10 to 15 years we have seen the dot com bubble burst, then the financial crisis. People who were working “for the money” were profoundly impacted.  Many of these people look to social entrepreneurship as a way to make a difference versus just engaging in business purely for profit. As the economy recovers, talent will be looking for opportunities to make money and be socially conscious. So while the job market is still soft, I think the adoption will be slow, but as the economy turns around, it will be interesting to see if corporations have to step up and be more socially responsible to keep their most valued employees.

VA: Do you see Benefit Corps or B Corps as opportunities for “impact investing”?

Definitely, I think that investors could target specific B Corps whose mission and values align with theirs. This downturn has caused many to re-evaluate everything about their financial lives and where to invest money should be at the top of that list.

Currently, several B Corps make their home in Georgia, including Freeworld Media, Gray Ghost Ventures, and ifPeople.

Legislation to recognize Benefit Corporations is pending in Colorado, New York, North Carolina, Pennsylvania, and Michigan.

To learn more about Benefit Corporations, check out http://www.bcorporation.net/.

 

November 2011 Newsletter

 

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