B Entities: Accountability and Transparency

Jeanne Lofgren Business Leave a Comment

B Corporations and Benefit Organizations are businesses that make a public commitment to a positive impact on society and the environment while generating shareholder returns. These businesses are held to higher standards of accountability and transparency. It is this accountability and transparency that help investors and customers see below the surface and beyond appearances into the company’s business practices.

The accountability element is met by writing into the company’s governance documents an obligation to consider all key stakeholder interests when making a business decision, including the interests of owners, 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 consistently with their standards of care and conduct. And, the Pennsylvania statute authorizing these business models specifically limits the types of lawsuits that may be brought against them. Only benefit enforcement proceedings filed by owners holding at least 2% of the outstanding equity can be brought against a company because it has elected to become a PA benefit corporation or PA benefit LLC. 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 exists for any other for profit business.

For transparency, B Corporations and PA Benefit Organizations 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 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. There are a number of rating agencies listed on the Benefit Corporation website that a Benefit Organization can use for the third party standard, including the B Impact Assessment. A B Corporation, however, must use the B Impact Assessment. Whether the business is a B Corporation or a Benefit Organization, using the B Impact Assessment has its advantages. It enables the business to generate a free annual benefit report based upon the responses to the B Impact Assessment, making a daunting task much less so.

These accountability and transparency requirements 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 why socially and environmentally conscientious consumers can spend their money with confidence, free of greenwashing.

**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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