The B Corp legal requirements are an important element of certification and are not optional. The legal element is sometimes referred to as the ‘teeth’ of certification, ensuring that companies not only have good performance in the past but that they have an ongoing commitment to their values into the future. This is part of what makes the B Corp community an elite group of leaders.
What is the legal requirement? In addition to meeting high standards of performance and transparency, B Corps also adopt a legal framework that ensures the protection of their mission. This increased accountability enables B Corps to build mission into the legal charter of the company as it grows, brings in outside capital, or plans succession, ensuring that your values can better survive new management, new investors, and even new ownership
Why is this important? The traditional corporate law requires that directors place profit above all else. In the United States, directors of for-profit companies are required to act solely for the ultimate purpose of maximizing the financial returns to shareholders.
How does this create liability for your Board of Directors and Officers? It is the opinion of our attorneys that adopting the B Corp legal framework to expand the definition of the "best" interests of the corporation should reduce the liability for Directors and Officers by creating legal protection (called "safe harbor") for them to take into consideration the interests of multiple stakeholders when making decisions, particularly when considering financing and liquidity scenarios. Adopting the B Corp legal framework will, however, give shareholders additional rights to hold Directors and Officers accountable for taking into consideration these same interests when making decisions --and that, of course, is the whole point.
What is the timing? B Lab recognizes that changing your legal structure can take time, so all B Corps have a specified time frame to make the legal change after they certify.
The legal requirement depends on what type of company you are and on where your company is incorporated. You can follow our legal roadmap to find specific information on how your company can meet the legal requirement.
Interested in more information on the Legal Requirement? Visit our website and check out our webinar series on Meeting the Legal Requirement for more information.