Delaware Public Benefit Corporations: Doing Well and Doing Good
A new Public Benefit Corporation law became effective on August 1, 2013 in Delaware. This law creates the option to incorporate a public benefit corporation, which is a for-profit corporation that also has a public benefit goal. Managers, officers, and directors must balance the best interests of stockholders, public interest, and the interests of those affected by the corporation’s conduct to discharge their fiduciary duties.
Public benefit corporations must state the public benefit that they will provide on the Certificate of Incorporation, and must make it clear in their name by using the corporate designators “public benefit corporation,” “P.B.C.” or “PBC.” Stock certificates and notices of meetings must also clearly state that the corporation is a public benefit corporation.
The corporation must also issue statements to stockholders every two years at most, including (i) the objectives of the board to promote the public benefit, (ii) the standards of measuring progress towards the public benefit, (iii) objective measurement of the corporations success using those standards, and (iv) an assessment of the corporation’s success in promoting their objective.
Changing from a for-profit corporation to a public benefit corporation requires 90% stockholder approval (dissenters are given appraisal rights), and terminating public benefit status requires a 2/3 vote. Directors are given strong protection against stockholder claims. Any claims from stockholder interest must meet a high threshold to succeed, as the director is considered to have discharged their duty if their actions were informed, disinterested, and a reasonable person could have taken the same action. While it is also possible for stockholders to file derivative suits to enforce these duties, the stockholder filing the suit must own at least 2% of the company.
Public benefit corporations are not a new concept, but Delaware is the first state to require the declaration of the benefit and certain other requirements, like biennial reports to shareholders. Additionally, corporation can be “certified” by B-LAB as having met other criteria, which has become the industry standard for public benefit corporations.
Sometimes having the PBC designation allows for preferred treatment with certain types of investors and regulators.
The public benefit corporation should be distinguished from a non-profit non-stock corporation because public benefit corporations are allowed to have a profit motive.