What’s a B Corporation?

What’s a B Corporation?

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Gary G. of Grasslands, the entreprenuerial blog, tells of a new form of business entity called the B corporation:

Traditionally, business owners have had the same few choices when it comes to incorporating. Either go unincorporated (as a sole proprietor or partnership), or form an LLC, S or C corporation. The differences between these various entities typically come down to taxation, the ability to have foreign shareholders and which corporate formalities must be followed.

None of them specify what a given company’s values and commitments are – until now.

Enter the B corporation (or “Benefit Corporation.”) It’s a new legal structure that designates a business as “socially responsible.” Unlike a standard S or C corporation, B corporations exist to codify explicit commitments to societal stakeholders.

The idea is the brainchild of a decidely left-wing 501(c)(3) organization called B-Lab (emphasis added):

The B corporation is a relatively new development. Created in 2006, the entity was first conceptualized by Pennsylvania firm B Lab. Essentially, the B corporation was envisioned as a way for any company to codify and advertise its commitment to “socially responsible” business practices. Becoming a B corporation occurs only after a lengthy certification process during which companies are evaluated on social and environmental matters

As B Lab’s “sneak peek” indicates, large companies are made to fill out a 26 page assessment containing questions pertinent to corporate governance, employee compensation, energy usage, manufacturing practices, charitable giving and more.

The assessment includes multiple choice questions and also some open-ended questions calling for 2-3 sentence responses. A company’s mission statement, for instance, is evaluated for social commitments and promises. Whether a company has been fined in the last three years, whether employees receive a “living wage” and whether its products “promote the arts, sciences or the advancement of knowledge” are other items weighted by the B corporation assessment criteria.

So is the B corporation an acknowledged legal structure for tax purposes? Not yet.

Here’s Gary:

As of yet, B corporations lack an official tax status distinguishing them from S or C corporations. In fact, B corporations are not yet a full replacement of those long-time entities. Reportedly, however, efforts are underway to change that.

The Christian-Science Monitor reported that B Labs founders proposed taxing B corporations at lower rates to Obama administration officials in 2009 to encourage more widespread adoption.

As of now, B corporations, regardless of the political correctness of their charters, are either C corporations or S corporations.

The B Corporation was obviously designed as a means of creating a Dun & Bradstreet-type rating of an entity’s conformity to a left-wing version of “good.” Thankfully, right now, it’s nothing more than a glorified Better Business Bureau. But if the B-Labbers somehow manage to get their elitist standards of nobility codified into federal law by way of tax benefits for B Corporations, they will have succeeded in politicizing the free market by dividing corporate America into good corporations – the ones who do the left’s bidding – and bad corporations – the ones who don’t.

In short, the B Corporation concept is a backdoor attempt to shift power from the private sector to the public sector. Creating new legal entities that conform to and actively promote the ideological views of an elite few gives those entities a competitive advantage over entities that do not conform to and promote those views.¹

It’s a clever, anti-democratic way of having central planners influence the free market without the electorate realizing they’re doing it.

Final Note of Clarification: I have no problem with the B corporation concept or with the idea that some corporations might deem it to be in their best interests to obtain a certification that gives them an advantage over their competitors. Both B-Lab and its customers are private entities and, as such, are free to do whatever they want. I draw the line, however, when governments grant tax breaks to organizations that meet the subjective ideological criteria of unelected and, therefore, unaccountable, third parties.²

Footnotes:

¹  Businesses receive and maintain their B Corporation status at the discretion of something called The Standards Advisory Council (the “Council”). The Council is comprised of 9 members. I did a little research on each of the current members and here is what I found:

²  Imagine the case of a non-profit organization that gave certifications to businesses that funded pro-life organizations. Those businesses meeting the non-profits subjective standards would qualify for L Corporation status. Now imagine the reaction of the left when the federal government granted beneficial tax treatment to these businesses?

About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

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Comments

  1. Vanessa L Loftus-Brewer says:

    Are there not a world of tax breaks for things included in the B Corporation already? Green energy incentives? Etc . . .

    In the recent, CA Bill, there is not approval required by B Labs, correct?

    Shouldn’t we all strive to create corporations to benefit our surrounding world?

    This Bill is just a manifestation of what we all need, an aware business model with a system of checks and balances to ensure the accomplishment of a mission.

    Why not provide a tax break?

    The possible public benefits listed below as embodied in the new CA legislation strikes me as sufficient reasons to provide tax breaks.

    Specific Public Benefit includes all the following:

    o Providing low-income or underserved individuals or communities with beneficial products or services.

    o Promoting economic opportunity for individuals or communities beyond the creation of jobs in the ordinary course of business.

    o Preserving the environment

    o Improving health

    o Promoting the arts, sciences, or advancement of knowledge.

    o Increasing the flow of capital to entities with a public benefit purpose

    o The accomplishment of any other particular benefit for society or the environment

    If there are tax breaks for people, who race horses, why not provide tax breaks for people trying to do provide a public benefit with their time, money, and businesses?

  2. Aaron Bauman says:

    There’s nothing inherently liberal about espousing principals that provide public benefit. Are you really arguing that there is no reason a conservative or right-wing organization would offer its employees a living wage, adopt values that respect the environment, or promote arts and culture?

    As to your point about government tax breaks: isn’t this what lobbyists are working for all the time? How is it undemocratic for B-Labs to work for the same thing for its constituents?

  3. Aaron,

    I am for that. I just don’t think government should compel it.

  4. Let’s say it is codified, either as a new subchapter, or just as a co-mingled version of Sub C and 501(c)(3). As soon as a new Czar is appointed to decide which corporations are good and which ones are bad, I think it would only be a matter of time until Bob Jones University v. U.S. will be used to narrow the scope down to non-profits as they stand today.