Many business owners strive to balance running a profitable business with doing good for the planet. As businesses grow, enforcing standards and achieving sustainability goals becomes more challenging. One successful strategy that businesses use to pursue both profits and purpose is to incorporate as a Delaware Public Benefit Corporation, or a “PBC”.
But what is a Delaware Public Benefit Corporation? Forming a Delaware Public Benefit Corporation enables your business to have the best of both worlds: generating profits while striving towards environmental, governance and social responsibility goals.
In this article, we breakdown what Delaware Public Benefit Corporations are, how they work, and how to set up your business as a Delaware Public Benefit Corporation.
What is a Delaware Public Benefit Corporation, Exactly?
Delaware Public Benefit Corporations (PBC) function like any other for-profit corporation, but with a key difference. Public Benefit Corporations bake specific public benefit purposes into their foundation documents as for-profit entities. Delaware PBCs can use company resources to pursue public benefit causes without strictly focusing on maximizing profits or shareholder value.
A Delaware Public Benefit Corporation has a similar structure as a traditional corporation, with:
- Directors: Who make strategic decisions for the company;
- Officers: In charge of day-to-day business operations; and,
- Shareholders: Who invest and have an ownership stake in the company.
Delaware Public Benefit Corporations name their stated public benefits in the company’s Certificate of Incorporation. The Certificate of Incorporation is the public document that officially registers the corporation in the state.
This informs both the shareholders and the public about the company’s commitments to advancing its stated causes. The public benefit purposes will always be a part of the company’s incorporation document, unless the directors carry out an amendment process.
How Are Delaware Public Benefit Corporations Different?
What sets Public Benefit Corporations apart from general corporations is that PBCs don’t have to focus solely on maximizing business profits. Leadership in a PBC can dedicate resources to the company’s stated public benefits without facing backlash from shareholders
People often expect traditional corporations to maximize value for their shareholders. Shareholders of a for-profit corporation can take legal action against the company’s board of directors if they feel that the board made intentional decisions that negatively impacted profits.
The idea of maximizing shareholder value typically prevents general, for-profit corporations from dedicating significant resources to social or environmental causes. In a Public Benefit Corporation, the board of directors has the freedom to make decisions that advance the company’s public benefit causes, even if it means sacrificing some profits.
Directors of a Public Benefit Corporation are legally protected from allegations of waste made by shareholders, as long as the company makes progress towards its public benefit purposes.
Delaware Public Benefit Corporation Advantages
Here are some of the key advantages of Delaware Public Benefit Corporations:
1.) Public Benefit as a Priority
The Public Benefit Corporation structure enables businesses to stamp social and environmental causes into the company’s formal documents. This allows the corporation to prioritize public good alongside general profit goals.
In addition, the PBC structure sets a high bar to reverse a company’s public benefit commitments. Removing a public benefit from a PBC’s incorporation documents requires approval from two thirds of the company’s shareholders.
2.) Protection for Directors and Managers
Directors can focus on public benefit goals without fearing backlash from shareholders, even if these decisions impact profits.
3.) Pursue Profits
A Delaware Public Benefit Corporation can still pursue a profit while prioritizing its public benefits.
A Delaware Public Benefit Corporation is not a nonprofit organization, or a 501(c)(3). A PBC is still a for-profit corporation that can make business decisions aimed at benefiting the company’s bottom line.
How to Start a Delaware Public Benefit Corporation:
Here are the steps you need to follow to set up a Public Benefit Corporation in Delaware:
Step 1.) Identify Your Public Benefit Purposes
The first step to forming a Delaware Public Benefit Corporation is to establish the company’s public benefit purpose. PBCs can promote causes that benefit the environment, the arts, their employees, or society in general.
The company must include the public benefit purpose (or purposes) in its corporate documents. It’s a good idea to have these purposes decided before forming the company.
Step 2.) Get a Delaware Registered Agent
Every corporation in Delaware needs to have a Delaware Registered Agent. If you do not have a physical mailing address in Delaware, you can hire a registered agent service, like IncNow, to be your Delaware registered agent.
Step 3.) File a Certificate of Incorporation with a Public Benefit Statement
Forming a Delaware Public Benefit Corporation requires filing a Certificate of Incorporation with the Delaware Secretary of State’s office. The company needs to include a statement in the Certificate of Incorporation detailing the specific public benefit causes the corporation intends to pursue.
Requirements for Public Benefit Corporations in Delaware
Because of their status, Delaware Public Benefit Corporations are required to be more transparent with their shareholders. For example, Delaware law requires PBCs to provide their shareholders with statements detailing progress that the company has made in promoting its stated public benefits.
The public benefit statement needs to be issued at least every two years, and should address:
- Objectives for promoting public benefits;
- Standards for measuring the company’s progress;
- Factual information about the company’s success in meeting its objectives; and,
- An overall assessment of the company’s progress towards its public benefit objectives.
The biennial public benefit statement is an additional requirement to the corporation’s Annual Meeting and Annual Report.
How to Convert your Company to a Delaware Public Benefit Corporation
If you have an existing Delaware corporation, and want to start pursuing public benefit causes, you can convert your company into a Delaware Public Benefit Corporation. This requires filing an Amendment to the company’s original Certificate of Incorporation.
The Amendment needs to state the public benefit causes that the company intends to pursue. Any Amendment to a corporation’s Certificate of Incorporation needs to be approved by two thirds of the company’s shareholders.
Is a Delaware Public Benefit Corporation a Non-Profit?
Delaware Public Benefit Corporations are not non-profits. Delaware PBCs are for-profit corporations that do not qualify for 501(c)(3) tax-exempt status.
Non-profit organizations are typically incorporated as non-stock corporations. A non-stock corporation is structured similarly to a general corporation, however, the company does not have shareholders. This means that the corporation does not have owners who can benefit economically from the company’s operations.