What is the legal requirement for my company and why do I need to meet it?

Modified on Mon, 18 Sep 2023 at 11:23 AM

The B Corp legal requirement is an important element of certification and is not optional. The legal requirement is sometimes referred to as the ‘teeth’ of certification, ensuring that companies not only have current good performance but that they have an ongoing commitment to their values built into their legal DNA for 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 by requiring the company consider the impact of its decisions on its stakeholders and have a wider purpose beyond just creating value for shareholders. 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?  Due to cultural and legal norms, traditional legal entities are expected to use profit maximization as the primary lens in decision making. Many now see this as a hurdle in creating long-term value for all stakeholders, including the shareholders themselves. The B Corp legal framework rejects this myopic model. B Corps are required to consider all stakeholders in their decisions. This gives them the flexibility to create long term value for all stakeholders over the long term, and even through exit transactions such as IPOs and acquisitions

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.

B Lab requires companies to complete the legal requirement at the highest level of corporate governance as possible, and only in specific circumstances and in particular regions (i.e. Italy) for the legal requirement to be completed at the highest operational level.

For more information about how to complete the legal requirement at majority owned subsidiaries or other types of entities in your scope, we recommend referring to the scoping case decision provided by B Lab.

The legal requirement depends on what type of company you are and on where your company is incorporated. You can follow our legal requirement tool to find specific information on how your company can meet the legal requirement.  

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