Corporation Structures Comparison: Social Purpose vs. Benefit
Social Purpose Corporations and B Corps: Balancing Profit and Social Responsibility
In the modern business landscape, corporations are increasingly embracing social responsibility alongside profit-seeking activities. Two prominent approaches to this balance are the Social Purpose Corporation (SPC) and the B Corporation (B Corp).
The Social Purpose Corporation (SPC) is a legal corporate form designed to pursue specific social or environmental purposes alongside profit. Originally known as the Flexible Purpose Corporation, it was renamed the SPC in 2014. The SPC's special purpose is explicitly defined in its governing documents and can be found promoting beneficial effects or reducing negative impacts on the environment, community, employees, suppliers, customers, and creditors.
On the other hand, the B Corp is a certification by a third-party nonprofit (B Lab) that assesses a company's overall social and environmental performance across its operations. To become certified, companies must complete the B Impact Assessment, score at least 80 points, and undergo verification. They must recertify every three years and pay annual fees.
While SPCs and B Corps share similarities in their goals, they differ primarily in their legal structure, certification, and recognition, as well as in tax implications and state-level recognition.
SPCs are recognized only in certain states that have specific SPC statutes. Recognition and formation rules vary by state, and not all states offer this corporate form. In contrast, B Corp certification is recognized nationally and internationally as a standards certification, independent of state law.
SPC status is a formal legal designation affecting corporate governance and duties to the social purpose. Directors of SPCs are required to consider and exercise discretion to further the corporation's special 'social purpose.' A 2/3+ vote of the outstanding shares is needed to change the purpose(s) of a Social Purpose Corporation.
In contrast, B Corp certification is not a legal status and does not create legally enforceable obligations or change fiduciary duties. It provides branding benefits, access to a network of like-minded companies, potential marketing goodwill, and external validation of social and environmental performance.
SPCs and B Corps offer socially responsible organizations unique advantages. SPCs embed the social purpose into the corporate charter, potentially protecting the mission over time and aligning legal duties with social goals. On the other hand, B Corp certification offers external validation of a company's social and environmental performance, which can enhance its reputation and attract socially-conscious investors.
Thirty states have Benefit Corporation legislation in place, requiring these corporations to be partially charitable. California enacted new laws for Flexible Purpose Corporation and Benefit Corporation on January 1, 2012, becoming the first state to provide a Flexible Purpose Corporation. Since then, six other states (Virginia, Vermont, Hawaii, Maryland, New Jersey, and New York) have followed California's lead.
Despite their differences, both SPCs and B Corps aim to create a positive impact on society and the environment while generating profits. By understanding these corporate forms, businesses can make informed decisions about the most suitable structure for their social and environmental missions.
[1] B Lab [2] National Conference of State Legislatures
- Businesses exploring a balance between profit and social responsibility might consider adopting either the Social Purpose Corporation (SPC) or the B Corporation (B Corp) approach, both of which focus on promoting positive social and environmental impacts.
- Unlike the SPC, which is a legal corporate form explicitly defined in its governing documents, B Corp is a third-party certification granted by B Lab, assessing a company's overall performance in terms of social and environmental impact.
