Let’s say you’re looking to start a new business and want to ensure you do it the right way. To give yourself the best chance of success, would you choose to incorporate as a B Corp or as PBC?
Both types of corporations have pros and cons, so it’s best to weigh them carefully before making your decision.
Below is a guide that covers B Corps and PBCs, as well as some major benefits and drawbacks to each type of incorporation, so you can make an informed decision about which type will be best for your business.
Definition of a B Corp
What is a B Corp? A corporation with a legally binding commitment considers the impact on society and the environment in its decision-making process. It does not knowingly act in harmful ways to society or the environment.
They must be certified by a third party, like B Lab, which certifies the company’s use of best practices for consideration of social and environmental performance, transparency, and accountability. In addition, they can receive full certification through an annual questionnaire after completing the steps outlined by B Lab.
Maintaining compliance with these standards over time can be difficult without help from qualified professionals who understand the regulations behind it all and have been vetted by other corporations like yours and their lawyers who certify compliance with local law.
Definition of a PBC
What is a Public Benefit Corporation (PBC)? A PBC refers to a corporation that has been incorporated for the public benefit to create and maintain a positive impact on society, as opposed to maximizing profits or shareholder wealth.
These corporations are different from other corporations because they have social objectives that cannot be ignored or compromised to maximize profits but must be integrated into decision-making processes.
The difference between B Corps and PBCs
Compared to a PBC, a B Corp is a for-profit company with social and environmental responsibilities incorporated into its business model to build long-term sustainable growth.
A B Corp seeks to generate both profit and positive social and environmental impact. They meet rigorous standards set by the non-profit organization B Lab and must be recognized as legal entities separate from their parent companies. The philosophy behind the company is based on four pillars: people, planet, profits, and purpose.
The primary goal of these organizations is to create an economic engine where the benefits are shared among all stakeholders – employees, customers, investors, and society– while respecting the environment by limiting their carbon footprint and making a positive contribution to their communities through charitable giving.
A PBC meets three criteria established by the Securities Exchange Commission (SEC) as of April 2015: it provides public transparency about social goals; it does not guarantee profit distribution; it does not provide any class voting rights or share ownership without a specified public purpose or mission statement.
Which corporation would you rather own shares in?
PBCs are typically privately held, non-profit corporations. With no shareholders, they rely on tax-deductible donations and grants to keep their businesses running. They often focus on charity and education and provide services and goods to the community.
These companies work closely with similar non-profits or governmental agencies to tackle big problems, like saving endangered species or stopping global warming. B Corps are for-profit companies with a public interest mission integral to the company’s success; rather than donating profits or using charitable donations, they include social impact in their business plan from day one.
For that reason, many B Corps measure themselves by whether they’ve achieved an impact greater than their negative environmental or social impacts.
Though it can be tricky to compare the two types of organizations, if you’re looking for an easy way to find out which type of corporation your company is (and therefore how much it should donate), look at what percentage of your profit goes toward keeping your business running each year–a higher percentage will indicate that you’re a PBC. In comparison, a lower percentage would suggest you’re a B Corp.
PBCs are great for a small company but may not be enough for a growing one. By becoming a B Corp, you can develop sustainable business practices that benefit society and the environment and generate profits for your organization, as well as potential investors like foundations and wealthy individuals interested in sustainability. With over 2,000 B Corp companies operating today in 60 countries across 80 industries, from fashion to finance, it is clear that the time is now to change from PBC to B Corp!