Do you want to make money while also making a difference in the world? The Delaware Public Benefit Corporation (“PBC”) allows companies to do just that. A Public Benefit Corporation is a for-profit business with a stated “public benefit” purpose set out in its incorporation documents. Delaware PBCs benefit both stakeholders and shareholders, and many Delaware companies are leaders in the sustainability movement.
We go in depth into what Public Benefit Corporations are, how they work, and how they can benefit your business.
What Is A Public Benefit Corporation, Exactly?
A Public Benefit Corporation is like a standard corporation, however, its directors must use a set amount of corporate resources to promote the company’s specific public benefit purposes. Delaware requires PBCs to state their public benefit purposes in the Certificate of Incorporation. This document is filed with the state and available to the public.
Shareholders in a PBC hold directors accountable and can sue if public benefit purposes are not being met appropriately.
Is A Public Benefit Corporation A Non-Profit?
A Public Benefit Corporation is different from a non-profit corporation. A non-profit does not have any stockholders and must use all of its profits to forward a specific public purpose.
Public Benefit Corporation Business Benefits
Incorporating as a Public Benefit Corporation can benefit a business in several ways.
- Attract Customers
Amending your Certificate of Incorporation to designate it as a Public Benefit Corporation may attract customers who wish to support businesses with a shared public interest.
2. Attract Investors
A Public Benefit Corporation may also be more attractive to investors who wish to invest in businesses for that same reason.
Investors may also perceive businesses demonstrating sustainable business practices as having lower liability risk. This makes these companies more attractive long term investments, even if their near term profitability is not as high.
It is important to note however that money is not free. Investors will surely expect a solid proven business model and revenues before investing.
What Is A Certified B-Corporation?
You may have come across the “Circle B” logo while shopping recently. This logo represents Certified B Corporations, also known as “B-Corps”. B-Corps are companies who have made significant commitments to forwarding public benefit purposes and sustainable business practices. The sustainability efforts of these companies are certified by a third-party organization called “B-Lab”.
B-Lab conducts a rigorous certification process which starts with the B Impact Assessment. The B Impact Assessment grades a company’s business practices pertaining to the environment, customers and employees. The B Impact Assessment is free and available to all companies. It is a great tool for comparing how a company’s sustainability practices compare to industry standards.
To apply to be a Certified B-Corporation, B-Lab requires companies to maintain a minimum B Impact Assessment score of 80 (the highest possible score is 200). For comparison, the average score on the B-Lab Assessment is between 40-60. After achieving the minimum score, the application process includes an intense series of interviews and the production of corporate documents.
Examples of B-Corporations
Doing good is its own reward and can help you align with your customers and promote your brand. Kickstarter and Patagonia are are two of the most popular Certified B-Corporations. Those companies and their customers enjoy supporting the greater good as they define it.
Companies that achieve B-Corp status prove that they are committed to driving real change. The application process is costly, and B-Corp certification does not guarantee a significant increase in business. IncNow is Delaware’s first Certified B-Corporation and the only B-Corp in the incorporation industry. IncNow stands out even amongst Certified B Corps, earning the Best for the World award in corporate governance three out of the last four years.
How is a Public Benefit Corporation Different From a General Corporation?
Traditional corporations impose duties on directors to maximize profits and return value for shareholders. This dates back to the case Dodge v. Ford.
The Dodge brothers were investors in Ford Motor Company and sued Henry Ford. Ford had decided to reinvest profits and retain cash instead of giving dividends to shareholders. The results of Ford’s reinvestment were higher wages for employees and cheaper cars for consumers. Shareholders saw Ford’s unilateral move as being a humanitarian effort and a breach of Ford’s duty to return maximum value on their investment. The Dodge brothers won the case and would later go on to start their own car company.
Although there was reason to believe a traditional general corporation could provide a public benefit by amending its purpose in its Certificate of Incorporation, the Public Benefit Corporation was a way to make that alternate social enterprise purpose mandatory, rather than permissive.
How to Start a Public Benefit Corporation
The steps to incorporating a Delaware Public Benefit Corporation are the same as for a general corporation. However, there are some additional requirements:
Step 1: File a Certificate of Incorporation with the Delaware Secretary of State
The Certificate of Incorporation is filed with the state and legally establishes the corporation. It lists general information about the company, including:
- Name of the corporation
- Amount of Authorized Shares
- Par Value of Authorized Shares
The Certificate of Incorporation for a Public Benefit Corporation must declare that it is a Public Benefit Corporation and provide a specific public benefit. The Delaware Secretary of State reviews and must approve the stated purpose before accepting the Certificate for filing.
Step 2: Report To Shareholders On Public Benefit Impact
Directors of a Public Benefit Corporation must report to its shareholder its activities in furtherance of the stated public purpose. This report is required every other year after incorporation. No outsiders other than its shareholders may enforce this public benefit.
How is a Delaware B-Corp Taxed?
A common misconception is that a Public Benefit Corporation is afforded certain tax benefits, much like a nonprofit (non-stock) corporation with 501(c)(3) tax exempt status. However, a Public Benefit Corporation does not have a separate federal tax designation.
A Public Benefit Corporation is taxed as a C-Corp by default. Incorporating as a Public Benefit Corporation only affects corporate duties and corporate purpose, not federal or state tax status. Public Benefit Corporations may also make the S-corporation tax election.
Do not expect to find tax benefits to being a Public Benefit Corporation, even if you are B Lab Certified. There is no such thing as an IRS classification for a B-corp or a special tax return. “B” does not refer to a subchapter of the Internal Revenue Code, in the way “S” or “C” do.