The legal requirement for Certified B Corporations
Certified B Corporations are legally required to consider the impact of their decisions on all of their stakeholders - a model known as stakeholder governance. The B Corp legal framework allows companies to protect their mission and ensures that the company will continue to practice stakeholder governance even after capital raises and leadership changes. The legal framework also provides more flexibility when evaluating potential sale and liquidity options.
The legal requirement ensures that B Corps remain legally accountable to all of their stakeholders - workers, communities, customers, suppliers, and the environment - not just shareholders.
Why this matters
Because of legal precedents and cultural expectations, businesses are often expected and required to make decisions exclusively through the lens of profit maximization for the benefit of the owners and shareholders - a concept known as shareholder primacy. B Lab considers shareholder primacy to be an obstacle to creating long-term value for all stakeholders, including the owners and shareholders themselves. We believe overturning shareholder primacy is integral to making our economy work for everyone.
But how do we overturn shareholder primacy? Integrating stakeholder governance into a company's DNA ensures that it stays legally accountable to a broad purpose and a commitment to consider the interests of all stakeholders. Stakeholder governance demonstrates that a company is not only committed and accountable to creating lasting value for all stakeholders, but is credibly using their business as a force for good.
How the legal requirement works
Use our tool below to understand your company's pathway to meeting the legal requirement.
The specific legal requirements for a company differ based on the company's legal entity type: corporation, limited liability company, partnership, co-operative, etc. Use the Legal Requirement Tool above and consult your local B Lab or Sistema B team to learn more about meeting the B Corp legal requirement in your market. The legal requirement often involves an update to the company's Articles of Incorporation or equivalent governing document, reincorporating as a benefit corporation, or making other structural changes. The timeline for meeting the legal requirement differs based on company size; see our certification guides for more information. In many jurisdictions, corporate law (sometimes called "company law") permits, but does not require, stakeholder governance. In other places, however, the law does not permit a company to adopt stakeholder governance as a voluntary matter. In places that do not clearly permit stakeholder governance, a change in law will need to be pursued. Until the law has been amended, Certified B Corps will be asked to sign a B Corp Agreement in which they commit to either amend their formation documents or adopt a new legal form if one is enacted through local lawmaking.
The B Corp legal framework intends to specify what language companies need to adopt, as well as where in their governing documents, so that there is enforceability in their commitment to stakeholder governance. Any change from the standard B Corp legal framework — including changes in wording to the language, placement of the language within the company’s governing documents, or in which document the B Corp legal framework exists (e.g. bylaws, partnership agreement) — will be reviewed for purposes of certification. In the event taking the steps to fulfill the legal requirement is against current law in the Company’s jurisdiction, the Company will work with B Lab to help determine the appropriate legal pathway. Any changes should be reviewed by B Lab in advance to avoid additional time in the certification process or remediation.
Our legal framework and tools may not address all entity types or challenges in every jurisdiction today, though each year it is expanding. If your company’s form is not covered in the standard B Corp Legal framework for a jurisdiction, please reach out to B Lab prior to making changes to your governing documents.
For most companies, completing the legal requirement is a meaningful, but straightforward process. If your company has a complex legal structure with related entities, you will work with a member of B Lab Global’s Certification & Verification team and your contact from your regional B Lab or Sistema B partner to analyze your corporate structure to confirm which legal entity or entities must fulfill the Legal Requirement for certification.
The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this website are for general informational purposes only, and information on this website may not be the most up-to-date information. You should contact your attorney to obtain advice with respect to any legal matter.
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