As a business owner, you will appreciate the importance of understanding what investors are looking for when seeking investment opportunities. Increasingly investors are looking into more aspects of the companies they invest in than just the level of return or financial profitability. Obviously, these things are still key drivers for attracting investors, but companies are also being required to demonstrate a balance between their financial gain and their impact on the world around them.
In recent years, there has been a greater investor focus on socially-conscious businesses and in particular on the environmental, social and corporate governance (ESG) aspects of a business. This has resulted in a growth of publicised metrics and information that try to demonstrate to the market which businesses are excelling at addressing their corporate responsibility and sustainability targets.
One such value-based tool that can be used by your company is to become a certified B Corporation, often referred to as a ‘B Corp’. B Corps are endorsed by B Lab which is a non-profit organisation whose purpose is to create a community of certified B Corp companies that work towards ‘reduced inequality, lower levels of poverty, a healthier environment, stronger communities, and the creation of more high quality jobs with dignity and purpose’.
There are now over 6,000 certified B Corp companies globally and although this was traditionally focused on smaller companies, B Corp status has now been achieved by much bigger players such as Ben and Jerry’s and Nespresso. The UK is one of the fastest-growing B Corp communities with currently over 1,200 certified B Corps.
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What is a B Corporation (B Corp)?
A company can achieve B Corporation or B Corp status by applying for certification by B Lab which confirms that the business meets a recognised level of corporate, social and environmental accountability and public transparency. The idea of becoming a certified B Corp is to obtain recognition that your company is meeting these standards and is actively pursuing these values.
The name is derived from ‘benefit corporation’ which is a corporate legal structure in the US which cements their social mission into the company’s purpose.
In the UK, obtaining certified B Corp status has been available since 2015 and a small but growing number of companies are participating. This article focuses on B Corp requirements and registrations for small to medium-sized private companies limited by shares.
Advantages and Disadvantages of becoming a B Corp
Advantages
- Achievement of B Corp status is a great marketing tool and PR opportunity for your business
- Recognition of your company’s ESG initiatives – the B Corp logo and brand can be used by your company once certified and this is widely recognised and increasingly used in advertising which is likely to have a positive effect on your business’ exposure
- Becoming a more attractive business for potential customers and retaining existing customers who are wanting to support sustainable and ethical businesses
- Research by B Lab UK shows that B Corps outperform on revenue growth, investment levels and employee retention rates compared to those outside of the B Corp community
- Positioning the company to potential employees as a progressive and socially-conscious place to work – potentially attracting a more diverse and wider pool of talent
- Investors have their own policies, standards and initiatives that they need to meet - if your company is known for having similar standards and values this may attract investors and ultimately even increase the saleability of your company
- Access to the B Corp community – opportunities to share and grow knowledge and ideas with fellow B Corp companies and opportunities to network with like-minded business owners and potential customers.
Disadvantages
- There have been recent controversies with larger multinational companies achieving B Corp certification - this could affect the impact of the B Corp status over time
- The disclosure process and public nature of reporting needed to achieve the B Corp certification may put off businesses who prefer to keep their information private
- Time, cost and resources needed for the initial certification and re-certification every three years – businesses will need to keep up with the frequently changing standards in order to avoid losing their certification which will require time and resources
- Limitations to the certification – there have been criticisms that the certification only requires surface level commitments and there is no accountability on a deeper level for example, pay levels for workers further down the supply chain
- To comply with the B Corp legal requirement, your company’s constitutional documents have to be amended to incorporate the B Corp legal language – this is a big commitment for a business and again will take time and resources to achieve.
Who can become a B Corp?
You can apply for a B Corp certification if you are a for-profit business with at least one year of operations, there is no minimum size that your company has to be to join the B Corp community. If your company has less than one year of operations, you can apply for pending B Corp status which is a step on the road to full certification. Charities, public bodies or majority state-owned entities are not eligible to become B Corps.
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How do you become a B Corp?
It can typically take a company between six and ten months to achieve B Corp certification and there are a number of steps required to complete the process, as set out below.
- Submission fee: £250 plus VAT is payable on application for certification.
- B Corp impact assessment (BIA): this will need to be completed and a score of at least 80 out of 200 achieved across the five impact areas of governance, community, workers, environment and customers, in addition to passing the disclosure questionnaire review. The disclosure questionnaire requires your company to confidentially disclose to B Lab any sensitive practices, fines, and sanctions related to the company or its affiliates. B Lab will then check your score and that your responses meet its certification standards which can involve interviews with B Lab and the submission of additional documents. The verification process can take several weeks or sometimes months. B Lab will also run a background check on your company including a review of public records, news sources and search engines. Your company may also be randomly selected by B Lab to undergo a site review.
- B Corp legal requirement: ensure you currently meet or are working towards meeting the B Corp legal requirement (set out in more detail below).
- B Corp declaration of interdependence and B Corp agreement: the B Corp declaration of interdependence is a mission statement that your company will need to sign up to complete the certification process. The B Corp agreement is a legally binding agreement that commits your company to meeting the B Corp legal requirement if not completed before the certification process has been finalised.
- B impact report: details the results of the BIA and is published in the B Corp directory immediately before certification.
- Annual certification fee: your company must pay an annual fee which is determined based on your total revenue for the preceding 12 months – this fee can range from £1,000 to £50,000.
- Annual impact report: must be produced to accompany your company’s annual accounts.
- Maintain your B Corp certification: once you have been certified, you will need to renew your certification every three years. This will include undertaking a re-verification and update of your initial BIA including a re-appraisal of your score by B Lab, providing additional documents if requested and continuing to meet the B Corp legal requirement.
The B Corp legal requirement
As part of the certification process, all prospective B Corps regardless of their legal structure or form will need to make adjustments to their constitutional documents to incorporate specific wording prescribed by B Lab. B Lab expects this wording to be adopted verbatim. This is known as the B Corp legal requirement. B Lab state that the B Corp legal requirement must be met by all B Corps to demonstrate their commitment to the ‘triple bottom line’ of people, planet and profit.
The language is drafted to legally commit the company to consider the impact of their business operations on all stakeholders with an interest in the company (e.g. employees, the community, shareholders, customers, the environment) and not just shareholders.
As a limited company you will be required to amend your articles of association to include the B Corp legal requirement wording in the following manner. The exact form of wording can be found on the B Lab UK website.
- The objects clause to either be amended or an objects clause included to state that the company exists to promote the success of the company for the benefit of its members as a whole and to have a material positive impact on society and the environment through its business and operations.
- A commitment of the directors acting in good faith to promote the success of the company while having regard to stakeholder interests without considering the benefit of any particular stakeholder interest as more important than another.
- Wording to require the company to produce an annual impact report to accompany its annual accounts which sets out analysis of the impact the company’s business has had over the year so that members can understand the way in which the company has fulfilled its purpose (as set out in the objects clause).
Any amendments to the articles of association will need to be reviewed by the board of directors and internal stakeholders to consider the impact of the changes. This will need to be considered on a stand-alone basis and in the context of the company’s existing articles of association and other constitutional documents (such as shareholder agreements) to make sure there are no restrictions or additional consents that are needed to make the amendments.
It is essential to have this process written into the minutes of a board meeting or in written resolutions where your company’s board approves the amendment and resolves to call a shareholders’ general meeting or propose a shareholders’ written resolution. This is because an amendment to your articles of association will also require that a special resolution (at least a 75% majority) in favour of the amendment is passed by your company’s shareholders.
You must submit the relevant form, the amended articles of association and a copy of the special resolution with the Registrar of Companies at Companies House within 15 days of passing the special resolution.
You must ensure you allow sufficient time for the review and approval process because for companies with less than 50 employees, the B Corp legal requirement must be met before finishing the certification process. Extra time is allowed after the certification process has been finalised for companies with 50 or more employees. If you do not meet the legal requirement within the allotted time frame, B Lab can revoke or decline your certification.
Our corporate lawyers can help you with this process from reviewing and amending constitutional documents to preparing the documents for board meetings and resolutions and making any necessary filings at Companies House.
Next Steps
If you are considering applying for B Corp certification for your business, we would strongly recommend seeking legal advice at the very early stages to ensure you have considered all aspects of applying for B Corp status and are prepared for all the steps in the certification process.
Our team of corporate solicitors have extensive experience in helping businesses become B Corp certified and can guide you through the application procedure.
