California Benefit Corporation Formation Guide

No. A Benefit Corporation is a for-profit corporation. It can make profits, pay dividends to shareholders, and be sold like any other corporation. The difference is that benefit corporations are legally required to consider the impact on all stakeholders, not just shareholders, and must pursue a general public benefit. Benefit corporations pay income taxes like other for-profit entities.

A Benefit Corporation is a legal corporate structure created by state law. B Corp Certification is a private certification from B Lab, a nonprofit organization. You can be a Benefit Corporation without being B Corp certified, and vice versa. However, many mission-driven companies pursue both: the legal structure provides protection for directors to consider all stakeholders, while B Corp Certification provides third-party verification and brand recognition.

Yes. Benefit corporation is a state-law corporate structure, while S-Corp is a federal tax election. A California Benefit Corporation can elect to be taxed as an S-Corporation by filing Form 2553 with the IRS, assuming it meets the S-Corp eligibility requirements (100 or fewer shareholders, one class of stock, etc.). This allows pass-through taxation while maintaining the benefit corporation legal structure.

There is no government enforcement mechanism if a benefit corporation fails to achieve its stated public benefit. However, shareholders have the right to bring a "benefit enforcement proceeding" to require the corporation to pursue its stated purposes. The real accountability comes from transparency: the annual benefit report must honestly assess the company's performance, and stakeholders can judge accordingly. Directors are protected by the business judgment rule as long as they act in good faith.

Yes. Benefit corporations can accept equity investment just like any other corporation. Many impact investors actually prefer benefit corporations because the legal structure ensures mission alignment even after ownership changes. The supermajority requirement to terminate benefit status provides mission protection. Major benefit corporations like Patagonia and Allbirds have raised significant capital as benefit corporations.

Yes. An existing California corporation can convert to benefit corporation status by amending its Articles of Incorporation. This requires approval by at least two-thirds (2/3) of the outstanding shares of each class of stock. Shareholders who vote against the conversion may have dissenters' rights to demand payment for their shares at fair value. The amended Articles are then filed with the Secretary of State.

A third-party standard is an independent framework for measuring a company's social and environmental performance. California law requires benefit corporations to assess their performance against a recognized third-party standard. The most common is the B Impact Assessment from B Lab, which is free to use even without pursuing B Corp Certification. Other options include GRI Standards, SASB, and IRIS+. The key is choosing a comprehensive, credible, independent standard that addresses your specific impact areas.

Only publicly traded benefit corporations are required to have a designated Benefit Director under California law. Private benefit corporations may voluntarily designate a Benefit Director but are not required to do so. Whether required or voluntary, the Benefit Director is responsible for preparing the annual benefit report and providing an opinion on whether the corporation achieved its stated public benefit purposes.