Is there a legal benefit to forming a B corporation?

The legal benefit of forming a new corporation having only a handful of shareholders as a B corporation is highly questionable. A “B” or “benefit” corporation is a special type of corporation permitted in some states, including New York and California. A B corporation is essentially a standard business corporation that has an additional purpose of creating “general public benefit,” that is, a positive impact on society and the environment, taken as a whole, as assessed against a third-party standard, rather than through the eyes of profit-seeking shareholders. The primary legal benefit of forming a B corporation is seen as allowing officers and directors to factor into their decisions the interests of society and the environment, in addition to shareholders’ financial interests, without fear of being sued for a breach of fiduciary duty. While that would be a substantial benefit to officers and directors of a large public corporation ordinarily tasked with looking out solely for the bottom line, it is of questionable value in a small corporation with just a few shareholders who are likely to be on the same page with regard to the corporation’s purposes. On the other side of the scale, there are increased reporting burdens on B corporations, which must produce an annual “benefit report” describing the ways in which the corporation pursued a general public benefit during the preceding year and assessing the corporation’s performance relative to achieving such benefits assessed against a third-party standard. That is a significant burden to be weighed against an unlikely benefit in a small B corporation. For more information, read our detailed article Is There a Legal Benefit to Forming a B Corporation?