B Entities: Accountability and Transparency

Jeanne Lofgren Business Leave a Comment

B Entities, that is B Corporations and Benefit Corporations, are held to a higher standard of accountability and transparency while creating their material and positive impact on society and the environment. It’s the accountability and transparency that help investors and customers to see below the surface and beyond appearances into the company’s business practices.

The accountability element is readily met by confirming, in the company’s governance documents, an obligation to consider all key stakeholder interests when making a business decision, including equity holders, workers, the environment, and the community. Importantly, there is no obligation to prioritize any one interest over another nor is there a course of conduct that bars one stakeholder from taking priority in a decision when it had not been previously prioritized. There is no personal liability for monetary damages for directors, officers, managers or partners who fail to create a material and positive benefit so long as they have otherwise acted consistent with their standards of care and conduct and in accordance with any requirements imposed upon them under their particular corporate governance documents. And, no third party beneficiary standing is conferred on any person who may be the target of a B Entities’ stated public benefit purpose. Embedding the accountability element into the governance documents is a statement of the company’s commitment to consider matters beyond equity returns. It is not, however, an open door to liability beyond what may otherwise exist for a company organized under the laws of Pennsylvania.

For transparency, B Corps and PA Benefit Corporations are required to prepare an annual benefit report and deliver it to their equity holders. These companies are also required to make the report publicly available, albeit redacted for sensitive financial information. The annual benefit report itself seems like a daunting task. It must state the ways in which the B Entity made a material and positive impact on society and the environment and met its specific stated public benefit, if it has one. Further, these statements must be assessed against a third party standard that is required to be credible, independent, and transparent, itself. There are a number of rating agencies listed on the Benefit Corporation website, including B Lab’s B Impact Assessment. If you’re a PA Benefit Corporation you can choose among the different rating agencies that meet the statutory criteria for PA Benefit Corporations, including B Lab’s B Impact Assessment. If you’re a B Corp, you must use the B Impact Assessment. The good news is that by utilizing the B Impact Assessment, a company is able to generate a free annual benefit report, making what appears to be a very daunting task much less so.

The accountability and transparency requirements imposed upon B Entities clearly are more than what is required of traditional for-profit legal structures. It’s one reason some investors may be willing to invest in a limited liability company that is a certified B Corp, when they otherwise may have required the company to convert to a corporation. It’s also a reason that consumers can spend with confidence, free of greenwashing.

On the other side of the spectrum of transparency and accountability lie nonprofit organizations. What is needed to satisfy a B Corp certification and the statutory requirements of PA’s Benefit Corporation law is less formal and intrusive than what is imposed upon nonprofit organizations. B Corps and Benefit Corporations can be a good alternative to the nonprofit model for products or services that can be monetized and for entrepreneurs who want to pursue a social and environmental purpose or impact, rather than a charitable purpose.

**This note does not provide legal advice and does not create an attorney-client relationship. Please consult an attorney about the specifics of your matter. Feel free to reach out to us for a consultation. We would love to hear from you.

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