If I’m Raising Capital, Should I Be A B Corp?

A B Corp, or more properly a benefit corporation, is a new class of corporation for companies seeking to blend both profit and purpose.

The B Corp is a new type of corporation for a new type of entrepreneur, the social entrepreneur, who creates business models that benefit society, the environment, employees, customers and investors. These social entrepreneurs increasingly demand that business serve both shareholders and society, considering the impact of their decisions on multiple stakeholders rather than maintaining a singular focus on short-term maximization of financial profits.

At times the pursuit of purpose can have a negative impact on profitability. This often creates tension between the investor and social entrepreneur.

Under a traditional corporation, the investor has the right to sue the entrepreneur if their purpose has a negative financial impact. So, social entrepreneurs are often stuck between a rock and a hard place. She is forced to choose between pursuing their purpose and risk possible personal liability if those decisions do not maximize shareholder value, or compromising on their purpose to please the investor.

The B Corp is designed to empower the social entrepreneur to pursue their purpose even when the investor is pressuring them to compromise. In that sense it’s the strongest possible legal way to protect the purpose of the company. The structure is designed to mitigate the tension between investor and social entrepreneur.

So, if you are a social entrepreneur that has a strong purpose that may have a negative affect on your profitability – a Profit-Purpose Tension business model – then a B Corp would be a good fit for you.

If you are not raising outside capital or if you have a Profit-Purpose Alignment business model, the B Corp is less necessary.

However, even in those cases, many companies choose a B Corp structure to ensure long-term mission lock should leadership ever change in the company.

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