Q. So we all know about “C corps”, the classic corporate legal structure. But what are “B Corps”?
A. It’s a new kind of legal structure for entities that want to pursue social benefits and profits at the same time. “Benefit corporations” and have just been adopted in Deleware, the 20th US state to jump in to the movement. Here’s a map of the places they’ve been adopted…
Q. So the obvious question is: why was this necessary?
A. Well, management of standard corporations has a primary duty to maximize profits for shareholders… management is actually violating its duties if it reduces profits to help accomplish some overall social good. On the other hand, not-for-profits were exactly the opposite, and therefore had trouble raising capital to pursue their goals. B Corps are a happy medium, maybe the perfect hybrid.
Q. So what sorts of ventures are we seeing take advantage of this new structure?
A. At one extreme, you might have a company might get set up to deliver waterwell equipment into very underdeveloped areas, with the double purpose of helping the local population and making some money – but not necessarily maximizing the potential profits. On another, you might have a totally normal business that just decides to buy from low-income producers at slightly higher prices, or install a lot of expensive eco-friendly equipment that will reduce profits.
Q. And I suppose we’ll see a lot of startups adopt this model…
A. Definitely: combine it with the new crowdsourcing rules and you can see tons of opportunities for idealistic entrepreneurs to “do well by doing good”. I think you’ll see a real flood of new B Corps over the next few years.