Corporation

Doing Good While Making Money: Benefit Corporations in South Carolina

You’ve heard of C-corps and S-corps, but what about B Corps?

B Corp is short for benefit corporation, a type of for-profit business entity that is regulated by state law. Currently, 35 states and DC have enacted legislation to create benefit corporations, including South Carolina.

As stated in the 2012 South Carolina Benefit Corporation Act (find it here), “a benefit corporation shall have as one of its corporate purposes the creation of a general public benefit.” Here, “general public benefit” is defined as “a material positive impact on society and the environment taken as a whole.”

Who Benefits from a Benefit Corporation?

Traditionally, corporations are run with the primary driver of making money for their shareholders. High-level decisions are made with this question in mind: How can we maximize profits for the benefit of the shareholders? Though it’s not actually a legal requirement for corporations to make the most money possible, this is often the way it works in the real world. After all, a CEO who doesn’t make enough money for the shareholders can be ousted by the board of directors.

But in a B Corp, making money is not the primary driving force. Instead, business decisions are guided, in part, by the desire to create a particular benefit in the world.

Examples of some benefits that a B Corp might have include:

  • Donating a portion of income to charitable causes
  • Operating in a way to reduce environmental impact or actively preserve the environment
  • Providing goods and services to a specific group of people such as low-income families
  • Providing employment and economic opportunities for underserved groups
  • Promoting education or awareness of a certain subject
  • Advancing the welfare of other groups besides in addition to the shareholders, like the employees, the customers, or particular minority groups

A well-known business that’s also a B Corp is Patagonia, which amended their articles of incorporation in 2012 to include a commitment to sustainability and treating workers well. Ben & Jerry’s also became a B Corp in 2012, with a goal of advancing social change for good.

What It Means to Be a B Corp

The decision to be a B Corp is a big one. It can drastically change the way you approach decisions and run your business. Of course, that’s the exact reason why some people want to run a B Corp.

For instance, let’s say your stated public benefit is to protect the environment. You may choose packing for your product that is biodegradable and more environmentally-friendly but is more expensive to produce. A regular corporation may be bound to sticking with less environmentally-friendly options, because that’s the decision that maximizes profits and increases shareholder value. But as a B Corp with a stated intention of helping the environment, you can choose to forsake some of those profits for the public benefit of a better environment.

Requirements for Becoming and Being a B Corp  

Entrepreneurs can incorporate their business as a benefit corporation in South Carolina by including a provision in its articles of incorporation that it is a benefit corporation and specifying its benefit purpose. Existing entities can also become B Corps by changing their status.

In South Carolina, there are some requirements that come along with being a benefit corporation. One is the submission of an annual report to the Secretary of State which must include, among other things, an assessment of the business against a third-party standard. Though the law says that a B Corp need not have an outside party certify them, there are organizations that do that, such as the independent nonprofit B Lab.

Additionally, a director on the board must be the elected and serve as the benefit director, and you may also have an officer designated as the benefit officer. (The same person can fill both roles at the same time.) Their roles and duties are described by law, but in short, both are responsible for making sure that the company is carrying out its mission as a benefit corporation in terms of the benefits it creates.

Advantages and Disadvantages

As with all types of business entities, there are pros and cons of being a B Corp.

Pros of being a B Corp:

  • Furthering a cause you believe in and making a positive change in the world through your company
  • Ability to make decisions in your company that align with your values rather than focusing solely on making more money
  • Attracting and working with talented people who share the same values (especially important to younger workers who increasingly want to work at ethical, mission-driven companies)
  • Attracting impact investors
  • Good for public relations and consumer perception of your business
  • Being part of a values-based global movement
  • If you change your mind later, you can easily drop your B Corp your status

Cons of being a B Corp:

  • Additional burdens of paperwork, certification, and maintaining benefit director and benefit officer roles
  • Converting to a B Corp may be difficult for existing publicly traded companies (which is why Etsy gave up its B Corp status and Warby Parker did, too)
  • Uncertainty due to how new B Corps are, and the potential increase in liability exposure

Though there many more advantages than disadvantages listed here, the disadvantages still merit consideration.

However, if you are driven to do good via your business and you want more control over how your company can make that happen, a B Corp is something to look into.

Is Becoming a B Corp Right for Your Business?

Changing your status or incorporating as a B Corp is a big step. Before taking that step, speak to an experienced business attorney like Gem McDowell. Gem has over 25 years of experience working with clients, giving them strategic advice on how to start, grow, and protect their businesses. Contact Gem and his associates at the Gem McDowell Law Group in Mt. Pleasant to schedule your free consultation by calling 843-284-1021 today.

What’s the Difference Between a C-Corp and an S-Corp?

Deciding what kind of entity you want to be is one of the first steps when creating a new business. If you’ve already decided that your business should be a corporation, rather than a limited liability company or something else, you still have to decide whether you want to be a C corporation (C-Corp) or an S corporation (S-Corp).

The Differences Between a C-Corp and an S-Corp

A C-Corp is probably what you think of when you think of corporations; the big ones, like GM and ExxonMobil, are C-Corps. They can have an unlimited number of shareholders, and anyone may buy shares, including other companies and people in foreign countries.

An S-Corp, however, has limits on how many people may be shareholders (currently 100) and who may hold shares, since corporations, partnerships and non-resident aliens may not be shareholders. (There are other differences between the two, and you can read more on the IRS website about C corporations and S corporations.)

The main difference is in taxation. A C-Corp is taxed at the corporate level and if dividends are distributed to shareholders, those shareholders are taxed on those distributions. S-Corps seek to avoid this “double taxation” by being taxed differently. Instead, the S-Corp’s income “passes through” to the shareholders, who pay taxes on the income only once. (Same for losses.)

How to Become an S-Corp

First you need to incorporate in your state as a corporation, which by default is a C-Corp. You don’t need to file anything with the IRS or the federal government to become a corporation. But you do need to file a Form 2553 with the IRS if you want to change your status to an S-Corp. What you’re really doing is asking the IRS to tax you under a different section of the code. (The C in C-Corp is because those corporations are taxed under Chapter 1, subsection C of the IRS code; S-Corps are taxed under Chapter 1, subsection S.)

Pros and Cons of Becoming an S-Corp

Assuming that you’re deciding between being a C-Corp and an S-Corp (and not an LLC or other business entity), the two main things to consider are taxation and shareholders. Electing S-Corp status will let you avoid corporate-level taxes but may also restrict the growth of your company by putting limits on who and how many may become shareholders. You will also have to be sure to follow the IRS’s guidelines so that you don’t do anything to lose your S-Corp status.

There’s no one-size-fits-all answer to this question, so it’s a good idea to speak with the other shareholders, a business attorney and an accountant to decide if becoming an S-Corp is the best option for your company.

Learn More About Becoming an S-Corp

Call 843-284-1021 to speak with business attorney Gem McDowell and his associatess at Gem McDowell Law Group in Charleston. They can advise you on the pros and cons of becoming an S-Corp and provide legal advice on a variety of other issues in business law.

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