FR2: How to meet the legal requirement

Modified on Tue, 9 Jun at 2:53 PM

What is the intent of the legal requirement?

When does the legal requirement apply?

How to meet the legal requirement

Types of evidence you need to upload in B Impact

If your company experiences a change in legal form or structure

If your jurisdiction does not yet allow companies to adopt stakeholder governance

Resources

What is the intent of the legal requirement?

Within the B Lab Standards, Impact Topic requirements assess a company’s performance on social, environmental, and governance issues. In parallel, the B Lab legal requirement empowers a company to practice stakeholder governance and protect their mission.

In conventional business practices, most companies operate through shareholder primacy – their decision-making is driven by the goal of maximizing profit for shareholders. B Lab views shareholder primacy as an obstacle to creating long-term value for all stakeholders, including shareholders.

This is why B Lab created the legal requirement as a fundamental pillar of B Corp Certification. By implementing the legal requirement, B Corps are legally required to practice stakeholder governance – they must consider the impact of their decisions on all stakeholders, not just shareholders. A company’s stakeholders include workers, suppliers, customers, shareholders, members, communities, and the environment.

Importantly, the legal requirement ensures the company’s mission is protected, even in the event of capital raises and leadership changes.

The objectives of the legal requirement are:

Give legal permission and protection to officers and directors to consider all stakeholders, not just shareholders.
Create additional rights for shareholders to hold directors and officers accountable to considering the interests of all stakeholders, while also serving the best interests of shareholders. These additional rights are only for shareholders and do not apply to non-shareholders.

When does the legal requirement apply?

Your company's specific timelines will appear in B Impact in the Legal Requirement section (within the Foundation Requirement section).

Most companies that generate less than $10M USD in annual revenue and employ fewer than 50 full-time employees must meet the legal requirement before certifying as a B Corp. If your company generates more than $10M USD in annual revenue or employs more than 50 full-time employees, then your company must meet the legal requirement within a grace period after receiving a valid certificate for B Corp Certification.

For companies with more than $10M USD in annual revenue or more than 50 full-time employees, the grace periods are listed below:

Category	Timeline to meet the legal requirement
Companies that are LLCs or contract law	Within 90 days of receiving a valid certificate for B Corp Certification
Companies that are Ltd, Corporation, or equivalent where benefit law is not available	Within one year of receiving a valid certificate for B Corp Certification
Companies in France, Colombia, or Ecuador	Within one year of receiving a valid certificate for B Corp Certification
Companies in jurisdictions where benefit corporation is available (excludes France, Colombia, or Ecuador)	Within two years of receiving a valid certificate for B Corp Certification

How to meet the legal requirement

For most companies, completing the legal requirement is a meaningful but straightforward process. The legal requirement often involves updating the company's Articles of Incorporation or equivalent governing document, reincorporating as a benefit corporation, or making other structural changes. Note that the legal requirement may vary according to the laws of the jurisdiction in which it is enforced.

Additional information on how your company can update your governing documents is listed below.

Review the B Lab legal requirement: The legal requirement for your company’s jurisdiction is available in B Impact, specifically in the Legal Requirement section. Similar information is also available on the B Lab Legal Requirement Tool on B Lab’s website. The legal requirement often specifies language that must be adopted in your company’s governing documents, as well as the placement of this language.
Identify the right governing documents: Your company must update the appropriate governing document for the company’s corporate form, e.g. Articles of Incorporation, Company Constitution, LLC Operating Agreement.
- Bylaws or Board guidelines do not meet the requirements.
Update your governing documents: The governing documents must be updated as per the B Lab legal requirement for your company’s jurisdiction.
If needed, seek legal counsel: B Lab recommends the company seek legal counsel familiar with these types of structures (e.g. benefit corporations).
- Any change from the standard B Corp legal requirement — 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) — should be reviewed by B Lab in advance and include a rationale from legal counsel explaining why the changes are being requested.
If needed, contact B Lab: If your company’s form is not covered in the standard B Lab legal requirement, we recommend you contact B Lab before making changes to the company’s governing documents.

After your company updates your governing documents, the next steps are listed below.

Get approval of the governing documents: Present your updated governing documents for approval to your Board of Directors and shareholders.
- Approval usually requires a majority or supermajority vote, depending on your company’s legal form and jurisdiction.
File governing documents: File your updated governing documents with the appropriate authority, and pay the filing fee.
- If the company works with legal counsel, then the legal counsel will normally draft and file amendments with the appropriate authorities.

Types of evidence you need to upload in B Impact

In B Impact, navigate to the Foundation Requirements section, and then the Legal Requirement section.

In the Legal Requirement section, upload your updated governing documents showing the B Lab legal requirement for your company’s jurisdiction.

If your company experiences a change in legal form or structure

Next steps for a company that experiences a change in legal form or structure

Change	Next steps
Change in legal form, e.g. a change from an LLC to a Corporation	Notify B Lab in advance of such change if possible. Otherwise, notify B Lab immediately upon the change. Adopt the legal pathway, if available, that is appropriate for the new legal form. Submit a copy of the amended or new governing documents to B Lab within 90 days of the change in legal form.
B Corp-initiated restructure	Notify B Lab in advance of such change if possible. Otherwise, notify B Lab immediately upon the change. After your company receives an updated scoping memo, adopt the legal requirement and submit evidence to B Lab within 90 days of receiving an updated certificate.
Change of control (legal restructure)	Notify B Lab of the change in control within 90 days after the effective date of the change of control or IPO. An audit process may be triggered by a change in control. After your company receives an updated scoping memo, adopt the legal requirement and submit evidence to B Lab within 90 days of receiving an updated certificate.
New acquisition (majority-owned and controlled subsidiary)	Notify B Lab in advance of such change if possible. Otherwise, notify B Lab immediately upon the change. After your company receives an updated scoping memo, adopt the legal requirement and submit evidence to B Lab within 90 days of receiving an updated certificate. Your company may exclude recently acquired legal entities from their certification scope, but only if the acquisition was finalized less than 12 months from the delivery of your company’s scoping memo.
B Lab Scope Rule changes	After your company receives an updated scoping memo, adopt the legal requirement and submit evidence to B Lab within 90 days of receiving an updated certificate. Your company may submit extension requests (subject to B Lab’s discretion and approval).

If your jurisdiction does not yet allow companies to adopt stakeholder governance

In some jurisdictions, the law does not yet allow companies to voluntarily adopt stakeholder governance. In these places, a change in law will need to be pursued.

Until the law has been changed, companies in these jurisdictions sign the Agreement for B Corp Certification, which includes a commitment to adopt the legal requirement once possible.

If the company is public and eligible for certification, it is not eligible for certification until B Lab has carried out legal analysis in the jurisdiction. Once eligible, the company may certify; if a legal pathway is not yet in effect, it makes its intention to adopt the legal requirement public on its website.

If adopting the legal requirement is against current law in the company’s jurisdiction, the company works with B Lab to help determine the appropriate legal pathway.

Resources

Important Notice: 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.