Should my startup be a public benefit corporation?
FormationPublic benefitFundraising
A public benefit corporation suits a company whose public benefit is the business model, not a value the founders hold. If the more you sell, the more of the benefit happens, the form fits: an organic food company whose benefit is access to healthy food, a lender whose benefit is credit for people banks refuse. If the benefit is something the company will do with its profits, or a way it intends to treat its employees, an ordinary corporation can do all of that already, and the PBC adds a report, a novel legal duty and a diligence question without adding anything the company could not do anyway. Five questions decide it.
A specific benefit
The charter has to name it, and a customer, investor or employee should be able to read the sentence and see how it relates to what the company sells. Making the world better is not a public benefit in this sense. Reducing food waste in restaurant supply chains is.
Central to the business, and measurable
The board will set objectives for the benefit and standards for measuring them, and report progress every two years. A benefit that grows with revenue is easy to measure and hard to neglect. A benefit that lives in a side project is neither, and a report that says little is the state most drifting PBCs end up in.
The legal novelty
The statute is from 2013 and there is almost no case law on how directors are meant to balance stockholders against the benefit. The good news is that the same absence means no PBC director has been held liable on the balancing duty, and the statute presumes a director who decides on an informed, disinterested and rational basis has done it right. It is still a duty with fewer answers than the ordinary one.
The investor conversation
Every investor's diligence list will have a question about the form, and many investors, including some who call themselves impact investors, will not have funded one before. The form itself has not stopped companies raising from the largest venture funds. It has cost founders a conversation in every round, and a founder who does not want that conversation should ask whether the mission needs the charter.
A company can convert to a PBC later, with board and majority stockholder approval, and can convert back the same way. Starting as an ordinary corporation and converting when the mission has proved central is a reasonable path, and it postpones the diligence conversation to a round where the company has more leverage.
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Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.