TL;DR: For founders with a clear mission and interest in accountability, it can be a useful tool that demonstrates that commitment from the outset. Just check with counsel for your specific situation and jurisdiction.

What is a benefit corporation?

A benefit corporation is a type of legal structure introduced by BLab and enacted in different legal jurisdictions. It allows companies to enshrine an explicit purpose in their corporate documents that extends beyond creating shareholder value.

<aside> 💡 NOTE: Benefit corporations are a legal structure. They are different than B Corp which is a rating and certification. This is probably the most common misconception.


Why is this helpful?

The primary benefit is often considered to be signaling the company's intention to 'do good'. This signal is considered valuable in marketing and hiring (see more Understanding Mission-Driven Advantage in Venture). By including a company's purpose in the corporate documents, the corporate structure itself helps contribute to this signal.

Perhaps more valuable however, is formalizing the requirement to make the company's purpose or mission explicit. Every company is guided by a purpose or mission, whether explicit or not. The mission informs the direction of the company that the strategy then aims to achieve. Articulating the mission for inclusion the corporate documents forces a deeper reflection on that direction, and through ongoing governance, should help keep that direction in focus over time. This is particularly valuable for ambitious missions, and during periods of intense growth or volatility.

What are the drawbacks?

There aren't any major drawbacks inherent to the structure itself as it is, in most jurisdictions, very similar to the standard corporate structure. Those similarities also make it possible to convert from conventional to benefit structures or back again. There are however, a few of things to be mindful of.

Do I need to do it?

No. The core benefits can be achieved in other ways.

Should I do it?

If you already have a clear mission and interest in accountability, incorporating as a benefit corporation can demonstrate that from start. Depending on your jurisdiction, it shouldn't cost you more in time or effort. Just check with counsel for your specific situation and jurisdiction as you would when incorporating anyway. Most counsel should be familiar with benefit corps by now, but if not, we've had great experiences with Westaway.