The world is buzzing about B Corps – the 'for-profit' businesses aiming to make a positive impact on society and the environment.
The reasons why businesses are buzzing to become B Corps are well reported. So too is the trend of their increasing popularity, from Ireland’s first B Corp certification in 2018 to the current hive of activity.
Less reported is what B Corp status means in legal terms for businesses. We consider the practical questions involved.
What is a "B Corp"?
Can an Irish “Limited” company become a B Corp or does it need to change to some type of American corporate structure?
Any Irish for-profit company can become a B Corp and it can keep its existing Irish company type.
A “B Corp” is not a new type of legal entity. Rather, B Corp status is a certification that a business meets a certain set of standards and takes certain actions, which demonstrate that the business has priorities other than just short-term profit. These priorities relate to having a positive social and environmental impact.
Similar to the way Bord Bia awards quality assurance marks for food standards, an organisation called B Lab awards B Corps status to businesses which act for the benefit all people, communities and the planet.
What legal commitments must companies make?
The key legal action for a company seeking B Corp certification is the requirement to amend its constitution. The company’s constitution must include the following confirmations:
- That the company shall endeavour to create a material positive impact on society and the environment, and
- That the directors, when discharging their duties to a company, must consider stakeholder interests, other than profit.
The stakeholder interests which the directors must consider when deciding how the company should act include:
- The interests of members
- The interests of the employees
- The interests of the customers and suppliers of the company
- Community and societal factors, including in particular those relevant to each community in which the company operates or where its suppliers and customers are located
- The impact of the company's business and operations on the local and global environment
- The short-term and long-term interests of the company
Interests of the company vs interest of society
The addition of the B Corp language in the constitution allows directors (and in fact, requires them) to consider interests other than just shareholder interests.
One of the mandatory clauses to be inserted in the constitution of a B Corp states that the members (the shareholders) acknowledge that endeavouring to create a material positive impact on society and the environment may have affect the financial position of the company and any such effect may be positive or negative.
It is these constitutional changes that allow the directors to take interests other than profit into account – the shareholders expressly authorise them to do this.
To be or nor to B Corp. Who makes the decision whether or not to become a B Corp?
Adopting the B Corp ethos is a significant decision for any business. As a practical matter, all stakeholders in the business will need to be involved and aligned with the vision.
However, ultimately it is the shareholders who must approve (by a special resolution) the changes which must be made to the company’s constitution.
Once the constitution has been amended, the board of directors then become legally obligated to comply with its terms. Directors will need to consider how they can show that they have complied with these new obligations. As a practical step, we recommend that the directors minute any discussions on stakeholder interests at meetings of the board.
The content of this article is provided for information purposes only and does not constitute legal or other advice.