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Among the fastest growing entity types in Delaware are Public Benefit Corporations and Public Benefit LLCs. While the Public Benefit LLC is a recent development, the Public Benefit Corporation has been available to entrepreneurs for several years. Both entities serve clients who have environmental, educational or social goals that serve the public good, as well as the intention to make a profit.
-Both Public Benefit entities are for-profit companies, designed for clients who want to do good while seeking a profit.
-The entity types can be formed in a similar way to a Delaware Corporation or Delaware LLC, in that a Certificate of Incorporation and a Certificate of Formation is filed with the Delaware Secretary of State for approval.
-Both the Certificate of Formation and the Certificate of Incorporation for the Public Benefit LLC and the Public Benefit Corporation, respectively are required to include a Public Benefit Statement. The Public Benefit Statement articulates an entity’s altruistic operating principles that require their members or corporate directors and officers to act in specific moral, ethical and responsible ways as they fulfill their fiduciary duties.
-For reporting purposes, a Public Benefit Corporation must provide its shareholders with a report as to the corporation’s public benefit identified in the Certificate of Incorporation and the interests of those affected by the entities conduct every two years. As well, a Public Benefit LLC must provide its members with information regarding its advancement of the public benefit every 2 years. For Delaware, the reports generally do not have to be made public as it does in other states.
-For a Public Benefit Corporation, the entity must provide the total number of authorized shares of stock and par value of the shares. Stock Certificates must also specify that the entity is a Public Benefit Corporation.
-For a Public Benefit LLC, shares of stock are typically not issued within the Public Benefit LLC. In addition to member and owner information, the internal LLC Operating Agreement must articulate in detail the “public benefits” that management may consider in operating the LLC.
-The corporate ending is different depending on the entity type. While clients can form a Public Benefit Corporation in Delaware with endings listed below, it’s important to note that if Foreign Qualifying the entity in another state, some states do not recognize the PBC endings. This is why sometimes, clients choose a standard Corporate ending for a Corporation such as ‘Inc.,’ to alleviate potential issues in the future.
For a Public Benefit LLC, the corporate ending is the standard corporate ending for an LLC such as LLC, L.L.C. or Limited Liability Company.
-Another difference is the Delaware Franchise Tax. Franchise Tax is the fee imposed by the state of Delaware for the right or privilege to own a Delaware company. The tax has no bearing on income or company activity; it is simply required by the state of Delaware to maintain the good standing status of your company.
A Public Benefit LLC pays a $300 Delaware Franchise Tax due June 1st of each year, while a Public Benefit Corporation owes Delaware Franchise Tax by March 1 of every year. For a Public Benefit Corporation, the franchise tax fees are based on the number of shares the entity has authorized. A company with 1-5,000 authorized shares is assessed a $225 franchise tax fee; a company with 5,001-10,000 authorized shares is assessed a $300 franchise tax fee; and a company with more than 10,001 is assessed a minimum of $450 franchise tax fee.
These are just some of the differences between the entity types as we continue to assist clients daily with questions pertaining to the Public Benefit formations in Delaware. In fact, HBS recently held an informative webinar that goes into detail about the Public Benefit Corporation and LLC. Here is a the link to watch the video: https://youtu.be/zWD8hFrGkuU.
If you have any questions or need assistance with forming a new Delaware company and obtaining an EIN for your new Delaware entity, I will be happy to assist. Feel free to contact me via email at firstname.lastname@example.org or I can be reached directly at 1-800-345-2677 or 1-302-645-7400 ext. 6144.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such sourceâ€™s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.