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Businesses use various terms to describe the fact that they operate “for purpose.” Two terms used are “B Corp” and “Social Enterprise.” While you might use both terms interchangeably to refer to organisations with a social objective and sustainability in mind, the legal and factual arrangements for these two types of business are different. This article will explain what these terms mean and the differences between them.
What is a B Corp?
A ‘B Corporation’ or ‘B Corp’ is a certification that for-profit companies can obtain from B Lab. B Lab is a global nonprofit network that certifies companies with B Corp status. B Lab only gives its certification to companies that have high standards of social, environmental performance, accountability and transparency. They are known to have rigorous standards.
In applying for B Corp status, a company will need to complete their impact assessment with B Lab. This involves responding to a series of questions about the company’s:
- environmental impact; and
- community impact.
To obtain B Corp certification, a company needs to obtain a minimum of 80 points. Otherwise, they will need to make changes to their business operations to meet this requirement.
This process is rigorous and judged very stringently. B Lab places many strict requirements, particularly concerning environmental impact and sustainability, that are prohibitive for many businesses. Other businesses have had to significantly rework their mode of business operations in order to achieve B Corp status.
What is a Social Enterprise?
A social enterprise is generally considered an organisation with a social mission and wants to achieve a social good (such as social wellbeing or environmental sustainability). While a social enterprise can be a charity, this is not necessarily true. Social enterprises may operate for a profit by selling their products and services while also aiming to achieve a social purpose. On the other hand, a charity is a non-profit organisation that functions for a specific charitable purpose. You cannot run a charity for private profit.
As a registered charity, you can receive a special donee tax status. This status provides the organisation with tax benefits, such as donations of money qualifying the giver for a donations tax credit or a tax deduction. However, a social enterprise that does not meet the definition of charitable purpose under the Charities Act will not be classified as a charity or gain these tax deductions.
The two main attributes that differentiate non-profit organisations from other businesses are that they:
- do not carry activities for the profit or gain of their members; and
- cannot distribute money or property to their members.
Instead, a charitable organisation must only act in accordance with its specific charitable purpose. The charity cannot distribute any of its profits to shareholders but can only use funds to further its charitable purpose. While a charity can employ staff, the owners of the charity must always ensure that they do not have any conflicts of interest. Workers must seek no personal benefit from the charity’s funds. If you run a charity for-profit, it will lose its charity status. Further, the owners may face penalties under the Charities Act.Continue reading this article below the form
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Differences Between a B Corp and Social Enterprise
The key difference between a B Corp and a Social Enterprise is that a B Corp is fully entitled to operate as a for-profit entity and distribute its profits to its founders or key shareholders. While B-Lab’s impact assessment and specific requirements will require that the company is run in a certain manner (otherwise be at risk of losing its B Corp status), from a legal perspective, B Corp companies are similar to any other company. They can fully act as for-profit entities. Therefore, although a B Corp company must operate its business in accordance with B-Lab’s impact assessment requirements, it remains that they are still considered for-profit entities for their shareholders. Likewise, they are not solely focused on a single charitable purpose unlike a charity.
On the other hand, a social enterprise/charity cannot act for its own private benefit. Its profits must be exclusively used for the advancement of its key charitable purpose. The owners of charities also have strict obligations not to act for their own private benefit, meaning they cannot legally pay themselves a salary. Doing so would be contrary to their charitable purpose. While they can employ staff, the charity cannot act in any way where its owners will receive profits.
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The main difference between a B Corp and a social enterprise is that a B Corp is a private company that has obtained its certification from B-Lab. They can act as a for-profit company for the benefit of its shareholders. On the other hand, a social enterprise/charity is a not-for-profit organisation that cannot act in any way which profits its owners. All profits from a charity must be used to further its charitable purpose, and from this, the charity is able to access special tax concessions.
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