Social Entrepreneurship and Alphabet Soup Corporations

May 18th, 2008

There’s the C corporation that most people are familiar with (what you get if you don’t specify anything else) and the S corporation that is tax free but doesn’t allow preferred stock. Both of these names come from the sections of the IRS tax code that describes them.

Add now the B corporation. The “B” stands for “beneficial”. It doesn’t have special tax rules- instead the intent is to tell people clearly that the company considers benefit to its employees, the general public, the environment etc. along with shareholder profits.  The organizers have developed a community of B-corp adopters, and it includes a bunch of “green businesses” but also a couple of big law firms, a skateboard manufacturer and a handful of software companies.

The challenge of socially entrepreneurial companies is that they can do very well, get acquired or obtain outside capital and/or management, and the core principles can get diluted. The B corporation process doesn’t prevent this from happening, but it does make loud and clear that social good is a core element of the business.

So how does one become a B corporation? First, one must fill out a survey. A passing score means that one can take the next step of amending the corporation’s Bylaws and Articles of Incorporation to state the social purpose(s) clearly. I haven’t done it yet, but I am going to take the survey as it applies to my own business.  I hope I score well!

There is nothing magical about any of this.  It can all be changed or abandoned completely.  It is, though, a way to tell the world what your company cares about strongly.  That can be good for the company, good for business and- one hopes- good for the world.

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  • AlexanderAinslie

    Hi Jay,

    Interesting post. US “B” corporations seem to be a weaker, light, version of CIC's (Community Interest Companies) in the UK. See: http://www.cicregulator.gov.uk/

    Just ran across your blog (and your services) through the FR post on Term Sheet Glossary.

    Alexander Ainslie
    Paris, France

  • Thanks for the tip, Alexander. I will check out the link on CICs.

  • AlexanderAinslie

    Bonjour!

    You are welcome. Ping me directly and I shall be happy to share more
    on the subject and also some “hybrid” structural combinations that I
    am involved with that may interest you relating to “Socialprise” (I
    think that's what they are trying to call this now!). FYI, my
    personal focus is on Charitable or Compassionate Capitalism oriented
    business models.

    You may also find this interesting:

    A Letter to Facebook’s Founder
    from The Deal Professor (Steven M. Davidoff)
    http://dealbook.blogs.nytimes.com/2008/05/30/a-
    founder/index.html?partner=rssuserland&emc=rss

    Alexander

  • Bonjour!

    You are welcome. Ping me directly and I shall be happy to share more
    on the subject and also some “hybrid” structural combinations that I
    am involved with that may interest you relating to “Socialprise” (I
    think that's what they are trying to call this now!). FYI, my
    personal focus is on Charitable or Compassionate Capitalism oriented
    business models.

    You may also find this interesting:

    A Letter to Facebook’s Founder
    from The Deal Professor (Steven M. Davidoff)
    http://dealbook.blogs.nytimes….
    founder/index.html?partner=rssuserland&emc=rss

    Alexander