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Why Form a Public Benefit LLC?

By IncNow | Published September 24, 2021

public benefit LLCYou may have heard of a Public Benefit Corporation, which is a for-profit corporation with a stated public benefit purpose in its Certificate of Incorporation. This allows corporate directors to balance stockholder profit with specific community benefits. Ordinarily, a traditional corporation cannot divert resources for public benefit unless doing so maximizes shareholder value. The Public Benefit Corporation (PBC) allows for certain overtly altruistic actions and protects directors from accusations of waste of corporate assets. Entrepreneurs and investors who want to do go good for the world while making a profit favor PBCs.

What if you want the advantages and structure of a Limited Liability Company, but also want to join the triple bottom line movement that balances people, the planet, and profit? Most entrepreneurs prefer LLCs to corporations for pass through taxation, flexible management and control, and for the ability to modify fiduciary duties. The solution is a Public Benefit LLC (PBLCC), which gives entrepreneurs the option to mission-lock an LLC.

What Is a Public Benefit LLC, Exactly?

A public benefit LLC is also known as a Statutory Public Benefit Limited Liability Company. The Statutory Public Benefit Limited Liability Company was first introduced in Delaware in 2018. Public Benefit LLCs are also available in a handful of other states including Maryland, Oregon, Pennsylvania, Utah, and Kansas. However, you can form a Public Benefit LLC in Delaware and do business in any state.

LLCs are managed by a private contract between the members, its operating agreement. Nothing prevents a traditional LLC from providing a public benefit, if that is what its members agree to. Nevertheless, becoming a statutory Public Benefit LLC shares this mission-driven purpose with the public. Additionally, the official designation as a Public Benefit LLC declares to the world the good that you do for others.

How to Form a Public Benefit LLC

The process for forming a Public Benefit LLC is the same as a traditional LLC, except additional language is added to the Certificate of Formation and Operating Agreement. You can also convert a traditional LLC to a Public Benefit LLC. Simply amend your Operating Agreement and your Certificate of Formation to include its public benefit statement.

Amending your certificate of formation to become a Public Benefit LLC can help a traditional LLC stand out. The designation may attract customers who wish to support businesses with a shared public interest of theirs. It may also be more attractive to investors who wish to invest in businesses for that same reason.

The Certificate of Formation of a Public Benefit LLC must (1) state in its heading that it is a “statutory public benefit limited liability company” and (2) include a “Public Benefit Statement” which describes the LLC’s particular public benefit purpose(s), and thereby requires management to achieve these goals in addition to profit. The Operating Agreement must explicitly state that the LLC is a “statutory public benefit limited liability company”. It also must describe the public benefit purposes, usually with more particularity.

Are Public Benefit LLC Requirements Certified?

A Public Benefit LLC balances (1) the monetary or other interests of its members; (2) the best interests of those materially affected by its conduct (customers, third parties, and the public); and (3) its specific public benefit purpose.

LLCs are private companies without the statutory reporting requirements of a corporation. To ensure that Public Benefit LLCs are meeting their public benefit goals, the state requires reports to members on achieving these goals. In Delaware, the LLC must provide a report to LLC members at least every two years. This requirement is more frequent in some states. In every state except for Delaware, the LLC must make these reports available to the public. A PBLLC will usually post them on the its website.

Should you want your Public Benefit Corporation or Public Benefit LLC to carry a “B Corp” seal, you can pay an annual fee (depending on annual revenues) to a private non-profit called B Lab for certification. The company must apply for certification and meet B Lab’s impact score threshold. The B Lab seal is not a legal requirement. It is a recognized brand that can give the public confidence that you are operating in a socially responsible manner. The B Lab’s B Corp seal is not available to companies less than three years old. This is to ensure a track record is established. Having a mission-locked Public Benefit LLC or Public Benefit Corporation is one way to earn “bonus points” towards certification by B-Lab.

Who Can Enforce Benefit LLC Requirements?

The members of a Public Benefit LLC have direct leverage to enforce the public benefit purposes of the LLC. If a Public Benefit LLC fails to pursue or fulfill its public benefit goals, then its members may bring a private cause of action against the LLC’s managers and/or officers to enforce the public benefit. The members may only do so if the members or their assignees own at least 2% of the LLC individually or collectively.

Doing good is its own reward and can help you align with your employees, customers, and community. It can also help you promote your brand. But doing it with a Public Benefit LLC is a great option that provides the protections of limited liability and the advantages of flexible management.

When deciding where to form your company, consider that Delaware has advantages over your home state that may benefit you. Go