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Perhaps you’ve heard about the new type of company called the “benefit corporation” or, as it’s called in Delaware, the “public benefit corporation.” Some states also call it a “certified B corporation.” Not since the introduction of the LLC has a completely new type of company been created—it’s generating a lot of excitement among people who want to form companies for a social purpose as well as a profit motive.
“We’ve all heard about corporations wanting to ‘do well’ while also ‘doing good.’ With this new law, Delaware corporations have the ability to build those dual purposes into their governing documents,” said Governor Jack Markell. Markell says there’s not only a market need for these businesses, but also a societal need. He noted the amount of investment funds for socially responsible investing has jumped by more than 20% over the past few years.
According to corporate laws, the purpose of a corporation is to create value for its shareholders. If the management of a corporation fails to create shareholder value and focuses instead on executing socially responsible acts, such as funding charitable endeavors, the shareholders can actually sue the company’s directors to steer them back on track toward profits.
Of course, many corporations promote their programs for helping social causes and charitable efforts in their communities or society in general. These programs are not prohibited, unless shareholders object.
The difference is, a public benefit corporation (PBC) contains a mandate, written into its Certificate of Incorporation, to balance the dual purposes of maximizing shareholder value and providing some specific, publicly stated social benefit.
“For Delaware to take this step sends a very strong signal to the business community throughout the country, and frankly, throughout the world that this kind of company is recognized by the premier jurisdiction for corporate law in America as something that is a good thing,” remarked Delaware’s Secretary of State Jeffery Bullock. Allowing PBCs in the state will have a ripple effect internationally.
The specific, publicly stated benefit must be clearly outlined; it cannot be vague and lofty. Examples of acceptable public benefits could be:
You can decide which public benefits you want to support, but you should devote time and money to only a few, so your company's efforts are effective. Naming too many benefits can cause some trouble when it comes to assessing your performance. Most states require you engage a third party annually to assess your performance, make that report public. Delaware allows for a self-assessment report every other year; the state does not require you make it public but it must be distributed to shareholders.
Why are entrepreneurs so excited about this new type of company? For one, today’s entrepreneurs want to balance profits with social contributions. However, there’s another big attraction: there are some major investment funds that will only consider investing in socially-conscious businesses, and they don’t want a vague commitment to a socially-responsible program, they want the companies they invest in to actually posess a legal mandate to provide a specific public benefit. Attracting investment capital from these funds is easier with a stated commitment.
Another good reason to form your corporation as a public benefit corporation is to attract sales from the 70 million socially-responsible consumers in the United States. It is estimated they control about $3 trillion per year in purchasing power.
Currently, there are about 400 public benefit corporations; they include well-known companies, such as Patagonia, Ben & Jerry’s, Plum Organics and Method. As of this blog's publication date, 20 states have passed an enabling statute to form public benefit corporations.
At Harvard Business Services, Inc., we are specialists in guiding you through the process of forming a public benefit corporation and will be happy to discuss the details with you. Just call, email or live chat with one of our customer service specialists today.
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.
There is 1 comment left for Public Benefit CorporationKelvin Parker said: Tuesday, June 6, 2017
Looking to start up a Benefit Corp in Delaware then eventually move it to Cali. Would love to discuss to 2 stock options and also see if you all complete my articles for me as well. I can add board members by mend the article at a later date correct? Kelvin 818.861.4438HBS Staff replied: Thursday, June 8, 2017
We are happy to call you to discuss.