The rise of benefit corporations
Recent interest in benefit corporations from tech companies like OpenAI signals an expanding appeal for this business model, once mostly embraced by purpose-driven industries. Competitors as Anthropic and xAI have already become benefit corporations, demonstrating that even sectors driven by rapid growth are exploring new ways to embed social and environmental priorities into their core operations. But does the legal designation of ‘benefit corporation’ truly hold leaders accountable for running their companies for the benefit of society?
What is a benefit corporation?
In April 2010, Maryland became the first U.S. state to enact benefit corporation legislation. Fast forward to 2024, and over 51 jurisdictions around the world have embraced this model. But what exactly is a benefit corporation, and why are so many companies opting for this framework?
At its core, a benefit corporation is a traditional for-profit entity with one key difference: it is legally obligated to balance profit with purpose. Unlike typical corporations that prioritize maximizing shareholder value, benefit corporations must consider or balance the impact of their decisions on a broader set of stakeholders, including employees, customers, communities, and the environment. This legal designation provides greater flexibility for companies to pursue long-term goals that align with social and environmental responsibility.
In Delaware, where most publicly traded and venture-backed benefit corporations are incorporated, the requirements are slightly different. Delaware public benefit corporations (PBCs) are required to operate in a responsible and sustainable manner, with a specific public benefit purpose that aligns with the company’s mission. PBCs must balance the interests of their material stakeholders, their specific public benefit purpose, and the pecuniary impact on their shareholders. This structure is designed to ensure that company decisions—whether related to taxes, wages, or factory location—are evaluated not just in terms of profitability but also in terms of their broader impact. While the intent of the benefit corporation or public benefit corporation (PBC) status is to create accountability in balancing these considerations, it does not achieve this on its own. The success of this approach depends on how the framework is applied and the commitment of leadership to uphold these principles.
One important difference between Delaware's PBC model and other statutes is in its transparency requirements. Delaware PBCs are only required to report their efforts to operate responsibly and sustainably to their shareholders, not the broader public, and must only share this information biannually. In addition, while Delaware PBCs are required to use metrics to evaluate their performance, they are not required to utilize a third-party standard and are instead allowed to create their own measurement rubrics. While many PBCs voluntarily embrace greater transparency and accountability, the law itself doesn’t set a high bar for public disclosure.
The rise of benefit corporations
Before the advent of benefit corporations, entrepreneurs who sought to integrate social and environmental values into their business models faced legal challenges. In many jurisdictions, traditional corporate structures operate under a shareholder primacy paradigm, which legally binds companies to prioritize financial returns above all else. These traditional corporations do not provide the flexibility and protection to prioritize purpose over profit, leaving businesses vulnerable to lawsuits from shareholders if they seek to advance social or environmental goals at the expense of financial gain. Shareholder primacy has contributed to many of today’s global challenges—such as climate change and income inequality—by reinforcing the private sector’s focus on profit at the cost of people and the planet.
Benefit corporation legislation was introduced to address this gap, creating a new legal status that enables companies to opt out of shareholder primacy and adopt a new model of governance that balances profit with purpose. The Certified B Corp community has been instrumental in the passage of benefit corporation legislation, organizing policy working groups, lobbying business organizations or trade associations, and testifying in support of benefit corporation laws. One of the most influential moments in the rise of benefit corporations occurred in 2011 when Patagonia became the first company to adopt this status under California’s new law.
“Patagonia is trying to build a company that could last 100 years,” said founder Yvon Chouinard. “Benefit corporation legislation creates the legal framework to enable mission-driven companies like Patagonia to stay mission-driven through succession, capital raises, and even changes in ownership.”
Benefit corporations or Certified B Corps — what’s the difference?
Benefit corporations and Certified B Corporations are often mistaken, but while they share similar principles, they are not the same. Certified B Corporations, or B Corps, are businesses that have been certified by B Lab for meeting rigorous standards of social and environmental performance. In contrast, a benefit corporation is a legal structure that varies by region, designed to ensure long-term mission alignment and stakeholder value creation. Unlike certification, this structure is only available in regions that have passed benefit corporation legislation, and businesses must incorporate within those regions to gain this status.
Why benefit corporation legislation is necessary, but not enough to transform the system
While benefit corporation legislation is a critical step toward aligning business interests with social and environmental values, it is not enough to transform our economic system. This legal framework enables companies to prioritize stakeholders beyond shareholders, but it doesn’t mandate or enforce high standards of behavior. Benefit corporations, like Certified B Corporations, offer an important model for businesses committed to higher accountability, yet voluntary adoption of these frameworks has limitations.
In companies with committed investors and directors, benefit corporation status can be a powerful tool for driving long-term positive impact. When adopted with genuine intent, this legal framework provides companies with the flexibility and protection needed to prioritize stakeholders alongside shareholders. However, as with any governance model, the effectiveness of benefit corporation status depends on how it is applied. Without strong commitment to its principles, there’s a risk that the framework may be used more as a label than a meaningful driver of change.
While voluntary governance structures like benefit corporations and certifications such as B Corp are important steps toward building a more responsible and sustainable business landscape, they are part of a broader journey. Both models offer frameworks that enable companies to prioritize social and environmental impact alongside profit. However, for true, system-wide transformation, we need to complement these voluntary efforts with broader changes that create accountability across all businesses.
To ensure lasting impact, it's important to encourage alignment between investors, companies, and stakeholders, along with evolving standards and regulations that help all businesses—whether certified or not—contribute to a more equitable and sustainable economy. These tools lay a strong foundation, but to achieve the full potential of a system that benefits everyone, we must work toward an economy where positive impact is built into the rules for all businesses.
A new economic system
The private sector has unparalleled power to create equitable economic prosperity on a healthy planet. However, under existing legal and cultural frameworks, companies and investors often focus on short-term profit maximization, prioritizing financial gains over the well-being of people and the planet. And while many individual companies voluntarily commit to serving a broader range of stakeholders, this approach will not be enough to achieve widespread systemic change.
To build an economy that truly serves everyone, we must evolve the system itself. New rules and regulations are needed to reshape the incentives and feedback loops that drive companies toward profit at any cost. This shift is already gaining momentum around the globe. In Canada, the proposed 21st Century Business Act is designed to hold Federal companies accountable to all stakeholders, not just shareholders. Similarly, the UK’s Better Business Act campaign is pushing to amend corporate law to ensure all businesses align their interests with broader societal and environmental goals. These movements are part of a growing global recognition that voluntary efforts like benefit corporations and B Corps, while important, are not enough. We need mandatory standards and regulations to ensure that all businesses, not just those who opt in, contribute to a more just and sustainable world.
The rise of benefit corporations is an important step in this direction, offering a model for balancing profit with purpose. But to achieve lasting change, we must go further, embedding social and environmental impact into the core of all business practices and creating accountability mechanisms that hold companies responsible for their broader impact, thus rewriting the rules that govern our economy to prioritize the well-being of people and the planet. Only by creating an economy where positive impact is built into the rules for all businesses can we ensure that every company plays its part in building a more equitable and sustainable future.