For years now, business owners have had the option to structure their businesses in various ways based on ownership interests, tolerance for liability, and tax preferences. Recently, however, new laws have also allowed businesses to pursue social and environmental goals through “B” corporation certification. Weighing the value of this status is an important consideration for any new Texas business.
What Is B Corporate Status?
Benefit “B” corporation status is a special certification recently adopted under Texas law. Texas enacted legislation to allow the status in June 2017 and B Corporation status will be available to businesses in September 2017.
Traditionally, officers and directors of for-profit corporations have a legal duty to their shareholders to maximize possible returns in all ways that are ethically permissible. Under a B corporation designation, a company can set forth a social or public good purpose that is also a goal of the company. This purpose can then be considered and balanced against profit-making.
For instance, a company may designate a public goal of:
- Improving sustainability
- Hiring marginalized or at-risk populations
- Donate a certain percentage of profits to a specific cause
- Minimizing environmental impact
After designating these goals, B corporations are required to report on their efforts to meet these goals, in addition to financial reports on the state of the company.
Benefits of Being a B Corporation
The primary benefit of obtaining B corporation status is that it allows a company to protect an underlying social mission. While officers and directors may still owe financial duties to shareholders, those duties can be balanced with the social goods and purposes identified by the company.
In a world where investors and consumers are looking to use their money in a socially responsible manner, and to use their pocketbook to express their ideals, becoming a B corporation can also help to attract consumers, quality employees, and large-scale investors. While many companies claim to do good, B corporation status can help you to stand out from the crowd.
But Be Ready To Practice What You Preach
B corporation status can help to signal that your company is a true leader in the movement toward social justice and environmental awareness, but the designation can expose you to liability if you are not careful to follow through on your stated goals. B corporations must provide reporting to shareholders and the public on the status of their public-good objectives and this information may be heavily scrutinized.
More importantly, if a shareholder believes that a B corporation is not living up to the benefit it has committed itself to, he or she may institute a benefit enforcement proceeding to challenge the company’s commitment to its mission and enforce its ideals. This can result in significant additional time and expense for employers, officers, and directors.
Weigh the Pros and Cons of B Corporation Status with Romano & Sumner PLLC
With the recent creation of B corporation status in Texas, now is a great time to consider whether adding a social or environmental mission to your company, or cementing an existing public goal, is a good step for your business. The business litigation attorneys at Romano & Sumner PLLC can help you evaluate the benefits and challenges of B corporation status and whether it is the right move for you. For more information, contact us online or at 281-242-0995.