How Incorporating a Public Benefit Corporation can Provide a Strategic Advantage in Today’s Market

Public Benefit Corporation good vibes sign

Investors and Consumers want to support companies that are out for more than personal gain and profit. Recent studies confirm this growing trend: 63% of American consumers look towards businesses to take the lead on issues of social and environmental change; 78% want companies to address issues of social justice; and 87% said they would buy from a company based on that company’s stated values on issues the consumers care about.  

 

For the most part, this is good news for businesses and startups. The market wants business to care about more than profit, and that means there is an opportunity to take on more social responsibility in a way that also makes long-term economic sense.

 

There are, of course, several ways to incorporate a broader view of social and economic responsibility into your company’s vision. These could range from small changes to how you brand your company’s values, to complete transformations such as incorporating as a non-profit organization. Many businesses are looking for something in the middle of these two extremes: something more permanent and tangible than just marketing, and something that will still allow the pursuit of profit and private gains – unlike a nonprofit.

 

One of the popular ways to attain this balance is to become a certified B Corp – we have previously shared an overview of what this entails. The other popular option is the topic of this article: how to become a Public Benefit Corporation.

 

First Things First: What is a Public Benefit Corporation?

A Public Benefit Corporation is an incorporation structure (similar to an LLC or a C Corp, for example). This means, essentially, that it is a type of company, and not merely any normal company that has some certified public benefit objectives (this is how Public Benefit Corporations differs from B Corps).

 

A Public Benefit Corporation can be publicly or privately owned: and this is where it differs from a Non-Profit Company. Nonprofits are not owned (i.e. they do not have shareholders), and cannot make profit or pursue personal gain. Public Benefit Corporations, on the other hand, do have shareholders and owners, are allowed to pursue profit and personal gain, but are incorporated to pursue some public benefit goals in addition to profit and personal gain.

 

What are the Benefits of Incorporating as a Public Benefit Corporation?

Public Benefit Organizations are committed, in their governing documents and accordingly in terms of incorporation law, to pursue public benefits in addition to profit. The obvious advantage is the ability to run your business with more in mind than just profit. It also serves the purpose of attracting investors and consumers who are increasingly interested in buying into sets of values and not only business plans.

 

Specifically, the legal benefits of Public Benefit Corporations are:

 

Broad Corporate Purpose

A Public Benefit Corporation is required to operate in a responsible and sustainable manner and to identify one or more public benefit purposes that it actively pursues. This means that you are not required to maximize shareholder value in all circumstances – not even in the case of a sale of your business or a takeover. (In more technical terms, Public Benefit Corporations are not bound by the Revlon Rules).

 

Accountability

Public Benefit Corporations have to balance the financial interests of shareholders with the best interests of those that are affected by the corporation’s conduct (and the identified public benefit purpose). On the one hand, this means that shareholders can’t hold the company’s directors accountable for sacrificing profits in the interests of public benefit and broader stakeholder interests. On the other hand, it also means that shareholders have a private right to enforce the broader purpose of the company.

 

This is a great way to protect the long term mission of a company – even if management changes hands, shareholders will still be able to demand that the company serve its stated public interest goals.

 

Increased Transparency

Public Benefit Corporations are required to report biannually to shareholders (and in some cases the public as well) about the corporation’s impact on its identified public benefit interests and purposes. This creates a robust incentive that will ensure the company stays committed to its goals.

 

How to Become a Public Benefit Corporation

New companies can incorporate as Public Benefit Corporations in any of the 34 states that have passed appropriate legislation. Any existing company can also elect to become a Public Benefit Corporation in those 34 states. The requirements vary by state, mostly with regard to how general or specific “public benefit” is defined per state. Here, we will focus on the requirements for electing to become a Public Benefit Corporation in Delaware.

 

1. Approve an Amendment to the Company’s Governing Documents

The first step to becoming a Public Benefit Corporation is to approve an amendment that states the company intends to become a Public Benefit Corporation, and to define the public benefit which it will pursue. The public benefit can be any positive effect (or reduction of negative effects) on any interests (other than stockholders, of course) including, but not limited to effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.

 

Once the board has adopted such an amendment, it must also be approved by the a supermajority of the shareholders (i.e. two thirds of the shareholders).

 

2. Appraisal Rights

If the company is privately owned, all shareholders who voted against the amendment must be allowed to cash out at a fair market value.

 

3. Filing with the secretary of state

Once the amendment has been approved, it must be filed with the secretary of state.

 

4. Name Change

The name of the company must be changed to include “Public Benefit Corporation”, “P.B.C.” or PBC. The company must also print and issue new stock certificates on which the company’s status as a Public Benefit Corporation is clearly visible.

 

Get access to affordable, expert business legal advice

If you are interested in forming a public benefit corporation, then you should seek the guidance of a skilled incorporation lawyer. LawTrades can put you in touch with a seasoned lawyer that can answer your questions and help you with various stages of business development.