Until 2016, the only B Entity business model for a startup was a Benefit Corporation. Certification as a B Corp required at least 12 months of operations, preferably more. Benefit Corporations are, however, just that … corporations. And, organizing as a corporation is one of the more expensive and complex legal structures available to the over-worked and cash-strapped entrepreneur, especially when compared to the ease and flexibility of the limited liability company.
B Lab, the nonprofit entity behind the B Corp and Benefit Corporation movement, has launched a B Corp Certification Pending status. It is a means for entrepreneurs to authenticate their social enterprise business model while utilizing the less expensive and more user-friendly LLC legal structure. It also grants the startup access to some (not all) of the perks and privileges of the B Corp community.
The requirements for a pending certification include:
• Accountability language in the legal documents
• Completion of the provisional B Impact Assessment (BIA)
• Signing a Pending Certification Term Sheet; and
• Payment of a $500 Pending Certification fee
The Pending Certification Term Sheet contains a commitment by the startup to becoming a fully certified B Corp in 12 months’ time. It also requires an acknowledgement that the startup has read the Guidance on Meeting B Corp Standards promulgated by B Lab.
The guidance offered by B Lab highlights certain details that can be missed on the BIA. For instance, answers to the BIA must be verifiable. B Lab will perform a random audit of 8-12 questions. So, documentation and formalizing business practices are important.
The startup should be mindful of the time periods involved in the particular questions because those periods can change from question to question. The guidance also explains that it is the company and not the founder’s actions that matter. Finally, it reveals some common mistakes in BIA answers, for example: double-counting one practice as both a community service and an employee benefit; or overstating a company’s impact; or misunderstanding what it means to have an “impact business model.” Not all certified B Corps have impact business models. In fact, such models are rare.
After twelve months of operations, the startup takes the “regular” B Impact Assessment and is required to have a verified score of 80 or more points. If the company is below 80 points, it receives a one-time 90 day extension to improve the score. Once the company passes the 80 point threshold, it is a full-on certified B Corp, having all the rights, privileges, and obligations as the other 1,840+ (and counting) certified B Corps.
Interested? Read more about the Pending Certification for startups from B Lab.
**This note does not provide legal advice and does not create an attorney-client relationship. Please consult an attorney about the specifics of your matter. Feel free to reach out to us for a consultation. We would love to hear from you.