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Can a company limited by guarantee be a B Corp?

company limited by guarantee become a B Corp

Can your company limited by guarantee be a B Corp in Australia and New Zealand?

Yes.

Subject to a few conditions:

  • Firstly, you need to operate in a competitive market. That means you need to sell products or services, which might include membership fees, subscriptions or consulting services.
     
  • Secondly, you cannot be majority philanthropically funded. This means that more than 50% of your revenue needs to be derived from earned income.
     
  • And finally it’s unlikely that a public body, an organisation with DGR status or an organisation majority owned by the government could be certified as a B Corp. This is because we know that while Public services and Charities have a very important role to play in solving social problems, but the B Corp certification is specifically aimed at Businesses. More detail is given below.

In the US, only "for profit" entities which have an ability to distribute profits or assets to private parties are able to certify as B Corps. The rationale for this is that the founders of B Lab were committed to the notion of doing business in a new way and viewed non-profits and charities as falling into a separate category because non-profits and charities do not tend in the US to issue equity, trade or distribute profits and therefore the tension between members and other stakeholders does not exist.

However, Australia has a very different legal environment to the US and there is an established social enterprise movement, as well as diverse legal forms.

Some organisations traditionally known as 'not-for-profit' may be eligible for certification if they meet the legal test outlined below. We demystify some of the common legal forms in Australia below:

Companies Limited by Guarantee and Incorporate Associations

A business will usually fit well into the community of B Corps if it generates the majority of its revenue from trading, competes in a competitive marketplace, is not a charity and is not a public body or otherwise majority owned by the state. For example, we have recently announced our first two entities that have adopted this structure: Good Environmental Choice Australia (GECA) and Agency and we look forward to welcoming many more.

Organisations with DGR status

As the B Corp model exists to demonstrate that business can be a force for good, it is important that in the public mind, the B Corp brand is associated with business.

Some charities trade in competitive markets and receive the majority of their income from trading activities. However, the majority of charities are primarily funded through grants, donations and voluntary income. If your charity has DGR status, it will not usually be eligible for B Corp certification. However, a typical trading subsidiary of a charity would be eligible for B Corp status, provided that it meets the criteria set out above.

Public bodies

Similarly, entities which receive the majority of their income from grant or other subsidies from the government will not generally be eligible for B Corp status - as such entities will not generally be operating in competitive markets. A business which competes in public service markets and so receives the majority of its income through contracts with the state will usually be eligible for B Corp status.

Please contact us at frontdoor@bcorporation.com.au for more information.

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