With the growing emphasis on corporate social responsibility and environmental sustainability, the concept of B corporations has gained significant attention. ‘B Corp’ and ‘Social Enterprise’ are frequently used interchangeably but are distinct terms with separate meanings and purposes. Both are business models aiming to achieve social and environmental goals. However, there are notable differences between them. This article will clarify the concepts and highlight the key distinctions between a social enterprise and B Corp.
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What is a Social Enterprise?
A social enterprise is not a legally defined term but is commonly understood as a business that prioritises achieving social or environmental goals. Social enterprises can take many forms, including for-profit businesses, non-profit organisations, and hybrid models.
In Australia, social enterprises are not a form of legal entity but rather businesses that strive to improve social or environmental outcomes while generating most or all of their revenue from trading or a business model. In other words, they are businesses led by a specific economic, social, cultural or environmental mission.
Governance Requirements for Social Enterprises
As a social enterprise is not a specified legal structure, no legal requirements exist. However, to clearly document and execute their mission, social enterprises often include variations to their standard governing documents. Such documents include:
- a company constitution;
- trust deed;
- governing contracts; and
- employment agreements.
Any variations will clearly define the social purpose of the business, how it will operate, and key personnel’s rights and duties. Stating these details in writing will enable stakeholders to understand the business better.
Continue reading this article below the formWhat is a B Corp?
A B Corp, short for B Corporation, is a business committed to high standards of social and environmental performance, accountability, and transparency.
B Corps in Australia are not registered legal entities. B Corps are certified by B Lab and undergo annual certification renewal. They must consistently evaluate the impact of their decisions on stakeholders and publish an annual report assessing their overall social and environmental performance. Under their B Lab certification, businesses are under obligations to consider the impact of their decisions on:
- employees;
- customers;
- suppliers;
- the wider community; and
- the environment.
Businesses operating for less than 12 months and those with Deductible Gift Receipt (DGR) status in Australia are not eligible for B Corp certification.
Governance Requirements for B Corps
To register as a B Corp in Australia, follow these steps:
- Eligibility: Be a registered Australian business and demonstrate commitment to social and environmental responsibility.
- Complete the B Impact Assessment (BIA): B Corps undergo a rigorous assessment process called the B Impact Assessment. This questionnaire evaluates the organisation’s policies, contributions, and metrics to determine their positive impact on the community. A minimum score of 80 is required to achieve B Corp certification.
- Verify the assessment: Provide supporting documents, pay the one-off verification fee, and have an independent analyst review your assessment.
- Meet legal requirements: B Corps must incorporate clauses within their governing documents (such as the company constitution or trust deed) that reflect their commitment to a triple bottom line approach — balancing social, environmental, and financial objectives.
- Sign the B Corp Declaration of Interdependence: Embrace values and principles guiding B Corps.
- Pay certification fees: Submission, verification, and annual certification fees based on revenue.
To be eligible to apply for B Corp certification, an organisation must consider the impact of its decisions on all stakeholders, a principle known as stakeholder governance. Business owners must demonstrate equal consideration for the needs of employees, the broader community, the environment, and profits.
B Labs has established specific legal governance requirements for B Corp status in each jurisdiction. This includes ensuring that the governing document complies with B Corp requirements and meeting specific legal obligations based on the entity type.
Further, B Corp organisations must establish a legal framework enabling them to uphold their purpose, even during events such as capital raises and leadership changes.
What are the Key Differences?
It is important to note that B Corps should not be confused with social enterprises or charities. B Corps undergo a certification process conducted by B Lab, which evaluates their overall impact and governance. On the other hand, social enterprise is a concept describing a business’ mission and purpose. It is not a legal structure or certification.
In Australia, B Corps do not possess specific legal or government status. However, they are recognised and verified by B Lab. Notably, B Corps do not receive tax exemptions or other concessions from the government. B Corps must also pay upfront and annual recertification fees. B Corps must maintain the above requirement or risk losing their certification if they fail to maintain the relevant requirements.
Key Takeaways
If you are passionate about a particular social mission, it may be beneficial to consider how your services can positively impact the local community or broader people worldwide. Social businesses can further strive for B Corp certification.
B Corp certification demonstrates an organisation’s commitment to balancing profit and purpose. It provides international recognition and trust that the business is held to a higher standard of accountability. While both B Corps and social enterprises share a commitment to social and environmental responsibility, they are different. Choosing between a B Corp, a social enterprise, or both depends on your business’s specific goals and needs. Likewise, you may wish to consult with legal and financial professionals to determine the best approach for a particular situation.
For more information or to start your business, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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