Of course, the question is, why would corporations need to integrate a built-in social cause into its objective? After all, part of the vision of Founders often sets the corporate culture and objectives, and many C-corps naturally incorporates the triple bottom line into their ideology.
However, there are some legal arguments that could be made that provide reasons why a B-Corp is much more advantageous for start-ups that a traditional C-Corp or S-Corp. One primary reason is that it shields the Directors from lawsuits by shareholders and third parties. I made the following chart here as a general guide.
In the UK, the CIC (Community Interest Company) is often compared to the US B-Corp, however if we take a closer look, the CIC is actually closer to the US 501(c)(3) Non-Profit than a B-Corp. The CIC is something of a hybrid between a traditional UK Charity and a Limited Liability Company. However, the CIC allows Directors to have a salary whereas in a Charity, the positions of Directors are entirely voluntary. Also the legal entity of a charity is the same as its members and Directors, so that Directors can be directly sued by third-parties, although these sorts of lawsuits against Charities in the UK are quite rare, compared to the US, where litigation runs rampant in every sector under any possible circumstance.
In my humble opinion, if entrepreneurs or Startup Founders with social motivations had to choose between a CIC or a regular Ltds I think it would be more advantageous to choose the latter. Although CICs are a hybrid between Charities and Ltds, there is a maximum cap on dividend payouts and profit distribution that would not be appealing for investors. In addition, in a traditional charity, tax relief can be applied to donations, whereas the CIC is considered similar to a Ltd in structure, which puts it into a unique position where it cannot benefit from private investors nor have the same advantages as charities by giving tax relief.
Although the Benefit Corporation structure is one that has its roots in social causes, so do Non-Profits, and there have been mass reported cases of fraud and misuse in regards to the latter (eg, American Breast Cancer Foundation, United Way, Kids Wish Foundation et al). The list of corrupt Non-Profits in America is disturbingly unending, despite the fact that there are many (such as NPR) that are highly regarded.
I think one should keep in mind that although the B-Corp should ideally have a Board of Philosopher Kings, who are collectively working towards the common good of the people and the environment, that any company can mask itself as mimicking those same causes, whilst taking advantage of its position of being effectively shielded by lawsuits.
Currently there are approximately 1,500 B-Corps in the world, with over 10,000 CICs in the UK and 1.5 million Non-Profits registered in the US. Despite whichever corporate designation that startup Founders may use, ultimately, it is up to the Founders and Board of Directors to drive the vision, not a company designation. Let's hope that B-Corps can overcome the corruption that has plagued many US Non-Profit entities, and be able to do the kind of incredible work that many charities have done in the UK, whilst still being profitable entities that are interested in the triple bottom line.
By Sierra Choi