What is a public benefit corporation?
FormationPublic benefitGovernance
A public benefit corporation is an ordinary for-profit corporation with one change to its purpose: its certificate of incorporation names a specific public benefit, and its directors are required to balance that benefit and the interests of the people the company affects against the financial interests of its stockholders. Delaware created the form in 2013, and the Delaware PBC is what most people mean by the term, though some thirty states have a version. For tax, fundraising, employee equity and everything else, a PBC is a C corporation. What changes is what the board is allowed and required to consider.
The four differences
- Purpose: the charter states one or more specific public benefits, which the statute defines broadly as a positive effect, or a reduction of negative effects, on people, communities or interests other than the stockholders as stockholders.
- Governance: directors balance stockholders, the stated benefit and the affected stakeholders, and a decision that is informed, disinterested and rational satisfies their duties.
- Reporting: at least every two years the company gives its stockholders a statement on how it is promoting the benefit, which it need not publish.
- Accountability: stockholders holding at least 2 percent of the shares can sue to enforce the balancing duty. No outsider can.
What does not change
A PBC pays the same taxes as any C corporation and its stock can be QSBS. It issues common and preferred stock and grants options in the usual way. It can be sold, can go public, and can be acquired by a conventional corporation. Venture and growth funds have invested in PBCs for a decade, and public companies including Coursera, Veeva and Lemonade are PBCs. The form is not a nonprofit and not a certification, and no audit is required.
Why companies choose it
To write the mission into the company's legal structure so that it survives new investors, a sale, or a public listing. Directors of an ordinary Delaware corporation are expected, when the company is sold, to get the best price for stockholders; directors of a PBC may weigh the buyer's plans for the mission. Founders also report a recruiting and customer-trust effect from the designation, and a small number of mission-driven investors look for it. The costs are the report, a fiduciary standard with very little case law behind it, and the time spent explaining the form to every investor who has not seen one.
Delaware's PBC is unrelated to the entities some states, California among them, call public benefit corporations, which are nonprofits.
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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.