Demystifying the Public Benefit Corporation

The webinar was recorded January 27, 2021

Speakers: Jarrod Melson, Brett Melson

Moderator: Michael Bell


Michael:         Okay. Alright. I hope everybody can hear me now. My name is Michael Bell, I'm the president of Harvard Business Services. We are here today to talk to you about demystifying the Public Benefit Corporation. I have with me here Jarrod Melson and Brett Melson. We're going to talk to you in great length about this up and coming corporation. I'll be running through the slides, and Jarrod and Brett are going to educate you on the process.

                     If you guys have never attended one of our webinars, we are Harvard Business Services. We were founded in 1981. We're family owned and operated. We're headquartered here in Lewes, Delaware. We have formed over 275,000 companies and have over 100,000 current clients worldwide. We are specialists in Delaware business formations and registered agent service. We're focused on our customer service, and our customers are our number one priority.

                     We are not attorneys nor accountants, so this webinar is not to be construed as legal or accounting advice. We're just educating you on the process. If you have any questions during the presentation, you can certainly put those in the question box, or you can just email us to or, and we'll be happy to answer your questions in that regard as well. Because we are limited as far as time is concerned with the webinar and we know everybody's time is very valuable.

                     We appreciate you attending today's presentation. I'm going to hand it over now to Jarrod and to Brett and they're going to introduce themselves to you on. And we'll get started with today's presentation.


Jarrod:           Excellent. Thank you, Michael. Good afternoon, everyone. Thank you for joining us. This is a very exciting Webinar in that we're addressing the topic of Public Benefit Corporation that is extremely hot. While it was adopted by Delaware some time ago, it's really just now coming into its own as part of the broader push toward investing and running companies with a view toward the environmental, social and good government principles and consequences.

                     People are looking at investing in business in a much broader way as part of a broader social fabric. The Public Benefit Corporation fundamentally asks the question, what is the role of the corporation in society? Is it strictly the pecuniary interest of the shareholders, or is it something more?

                     But before we jump in, I'd like to introduce ourselves. I have here Brett Melson. I'll let him take it from there.


Brett:             Hello, everyone. We're excited for this webinar. I'm Brett Melson, and I've had the pleasure to work with Harvard Business Service for 21 years now. I'm the vice president of sales. I've helped countless number of clients form corporations, LLCs, LPs, public benefit entities.

                     We're going to talk about it from a two pronged attack. I'll go ahead and discuss some of the issues and questions that clients have presented about the structure, while Jarrod's going to go about it from a different angle. We encourage questions, and we'll do our best to answer them at the end.


Jarrod:           Excellent. Thank you, Brett. For my part, my name is Jarrod Melson. I'm the General Council of Harvard Business Services. I joined Harvard Business Services in 2019. Prior to that, I spent approximately 15 years practicing corporate securities and venture capital focused law in Washington, DC. some of the biggest firms in the world, thankfully, provided me a boot camp of an education on these topics.

                     So just to give you an overview of what we're looking at today. What is the Public Benefit Corporation?

                     Well, first of all, it's fundamentally just a corporation. The public benefit provisions are actually included within the Delaware General Corporation Law. So there's specific sections that deal with this type of entity, but it's not broken out from the General Corporation.

                     What it is, is it's a type of corporation that can elect the status of a Public Benefit Corporation. The PBC, as we're going to be referring to it, is a fast growing entity type. There's been an explosion of interest in the entity type, and it seeks to generate a profit for its shareholders while furthering a specific public good. That public good, as we're going to discuss, could be environmental, educational, religious, artistic, cultural. It doesn't really matter -- well, within limits. As long as the public benefit company is pursuing a business goal and a specific public good.

                     The public good need not be linked to the business goal. But we'll get into that in later discussion.

                     The Public Benefit Corporation is -- quote -- "intended to produce a public benefit and operate in a responsible and sustainable manner." That's right from the Delaware general corporate law. And it's saying a lot, essentially, in these broad strokes and saying how a corporation has to be managed, how it needs to look at its efforts and how it needs to look at its results.

                     The Delaware General Corporate Law says that -- the public benefit company shall be managed in a way that balances the stockholders pecuniary interests against the interests of those affected by the corporations conduct, as well as the chosen public benefits.

                     As we're going to get into in this discussion, that is a sea change in corporate law. Rather than focusing purely on the monetary interests of shareholders. Directors are now being given, and in fact, mandated to look at the interests of persons affected by the company, including consumers, employees, the towns in which the factories were located -- really anyone, as I said, affected by the corporation's actions as well as the public benefit.

                     So instead of a narrow fiduciary duty, you have in the public benefit company a fiduciary duty coupled with a balancing of interests that has to occur. And as we'll see in this discussion today, Delaware has arranged that new panoply of duties in a way that directors have a great deal of protection from liability.

                     I sort of use this as training wheels in the Public Benefit Corporation for future development.


Brett:             I guess one of the reasons why Delaware came up with this type of structure is because the corporations are traditionally required to maximize the return for the shareholders. And that being said, providing to the public, whether it be the artistic/cultural in providing this particular public benefit, Delaware saw the need for this addition of this Public Benefit Corporation.


Michael:         And there's a lot of states that are considering putting it into law now too, once...


Brett:             They're copycatting Delaware.


Michael:         A lot of states do that because Delaware is usually the first to adapt to different things.

                     So let's go into a little bit about what this presentation will consider as far as the Public Benefit Corporation is concerned.


Jarrod:           That sounds good. Thank you.

                     The first thing we're going to discuss that the formal requirements to elect to become a Public Benefit Corporation -- what needs to be done in the certificate and formation.

                     Second, we're going to discuss the Public Benefit Corporation bi-annual reporting requirement. Meaning, once every two years, just for purposes of clarification.

                     Next, we're going to discuss that balancing of interests that I spoke of in decision making -- how is the director supposed to balance the pecuniary interests of a shareholder with with wide range of interests of virtually everyone that the corporation's activities touch upon.

                     Then we're going to speak on the limitations of liability for directors -- what protections are there for directors in dealing with this new way of conceiving of the duties of a corporate officer?

                     And then lastly, we're going to be looking at the requirements for converting to or from a public benefit company. It's possible that many existing companies, having operated as standard corporations, may now choose the Public Benefit Corporation form rather than electing to continue as they were.


Brett:             Yes, you're correct, Jarrod. That's something we're seeing quite a bit of. We're having a lot of filings from clients wanting to have this different structure.


Jarrod:           Interesting.

                     Just as a bit of background for a second. Maryland was the first to adopt a public benefit style entity. Delaware, rather uncharacteristically, was 19th among the states in 2013. Of course, that's now over 40 states now have some sort of benefit corporation.

                     Why is the Public Benefit Corporation garnering significant attention now? As I mentioned, there are strong tail winds from environmental, social and good governments investing in business operations. It's a movement. It's a very fast growing, very fundamental movement in the business world that is shifting from a purely shareholder profit-based frame of reference to one that looked at a corporation as a multifaceted participant in society, something that has to not only take from consumers but also give back to the society that allowed it to operate that created it.

                     The best evidence of this is the Business Roundtable statement on the purpose of a corporation. It's 181 CEOs came out and surprised everyone, really, when they called for a shift away from what's referred to as shareholder privacy -- putting the shareholder first -- to something more broad, to something more fluid, that takes a multitude of factors into account.

                     It's a more European model, to be honest. For instance, in Germany, France and other places like that, other constituencies are required to be considered, not just shareholders.

                     Further, Public Benefit Corporations are going public. There's a number of them in the works. There's a couple that are already public companies, and it's only going to grow more common. Just this, as Brett was saying, the conversion into public benefit companies, just this month, we saw a company called Veeva Systems become the first public company to convert to a Public Benefit Corporation as well as the largest converted company.

                     That's all intended just as background in order to sort of tell you why we're talking about the Public Benefit Corporation. And I think now, Brett and I will go into what is required to elect BBC status.

                     First and foremost, at a very simple level, is the name. A PBC's name has to include the words Public Benefit Corporation or the abbreviation P-period-B-period-C-period, or simply PBC.


Brett:             That's correct. Now, the state of Delaware does allow for corporate endings to be used, such as your traditional Inc, Corp, Corporation, Co, Company. One of the hurdles or obstacles that we have seen from clients using some of these new endings from the Public Benefit Corporations, for instance, PBC, it's looking to register the entity in a state that doesn't necessarily have the public benefit structure yet. That ending has caused trouble looking to qualify it, since it's not an acceptable ending within that jurisdiction or state.

                     So, many of the Public Benefit Corporations that we're forming at this time will have the indicators of the PBC, or they will go with the traditional Inc or Company or Co, something along those lines.

                     But there are some significant differences with the certificate of incorporation. It's got to specifically state that it is a Public Benefit Corporation. It's very important.


Jarrod:           You have to put people on notice that what they're dealing with is a Public Benefit Corporation. It has to include that statement in the header. And also it has to include the public benefit statement itself.

                     These takes of crafting, particularly in these early days as people are figuring out what the state will accept. And Brett, they will come back, if I recall, and...


Brett:             That's a great point. We often see clients submit an order to file a Public Benefit Corporation, and instead of providing a public benefit statement, a statement spelling out what the public benefit will be, we'll often see them instead provide a mission statement -- "The mission of the company is to provide technological services to the US."

                     So they're not providing and giving instructions on the formation on the certificate of incorporation about what is the specific public benefit that this will be helping. That usually the biggest mistake that we see when clients are forming a public benefit entity.


Jarrod:           I think for the for the benefit statement itself in my work, drafting those statements is -- it must be broad enough to encompass a range of activities, or at least an activity in a rage of geographic locales. But at the same time, it has to be narrow enough so that it gives the benefit corporation room to grow.

                     So, for instance, a benefit statement that's too narrow might say -- "The company will work to eliminate childhood hunger in the Blank school district in Florida."

                     The corporation might soon find that it's looking out to grow out of that one school district to move to multiple school districts, perhaps the county. And at that point they would need to amend their certificate of incorporation if they pigeon holed themselves in that way.

                     Something broader is -- "The company seeks to eliminate childhood hunger in public schools, including, but not limited to those in the state of Florida."

                     So you're getting the same benefit across, but at the same time you're giving the company room to move.


Brett:             These statements are very important. These statements are going to be listed, like you said, on the actual certificate. It's filed with the state of Delaware. It's always going to be there. You can go ahead and file to amend that certificate of incorporation, but that original public benefit statement will always be there. But that public benefit statement as well, also serves as notice to investors to spell out exactly what the company's specific public benefit will be doing.


Jarrod:           That's a good point. It serves a marketing service as well. I think, too, it's important to note that the benefit statement is different from the general business purpose statement.

                     I often in my work used to include broad purpose language that just said -- the purpose of the company is to engage in any lawful activity for which corporations may be organized in Delaware.


Brett:             And that's what we usually see on the certificate, just to allow them the flexibility to conduct lawful business activity and do what they choose.


Jarrod:           That's right. You have the business statement and then the benefit statement, which may or may not be related to the company's business -- a semiconductor company could be worrying about literacy in Appalachia.

                     So there's very few limits subject very specific requirements that Delaware states that the benefit cannot pertain to.

                     Next we look at another aspect of sort of the marketing facet of a PBC and that's the reporting requirement, the biannual, once-every-two-year reporting requirement. And basically, that says just that every two years the PBC has to provide shareholders with a report about how the company has promoted the public benefit identified in the certificate and how it's promoted the best interests of those materially affected by the corporation's conduct.

                     So, how has it treated its workers? How has it interacted with suppliers, with consumers? With those that are the recipients of its benefit? For instance, previously illiterate children. How is it interacting with these people? Essentially, what is it doing?

                     In the slides there, I've listed some of the specific categories of items that it should include. That includes things like how do they measure results? What are their objectives, separate and apart from the statement itself? What are their concrete objectives? What facts can they show to illustrate either their success or the need for more work on satisfying the public statement? And really, do they think they're succeeding or not?

                     This report need not be made available to the public. It can be. A PBC could decide to provide this report to anyone, but it only needs to be given to shareholders. An important fact is that is need not satisfy any third party standards.

                     So unlike what they call a B corporation, where a third party rating agency is coming in and giving its approval, as in a B corporation, the public benefit company's report need not be held against a third party standard. It can be simply a narrative stating what the company has done and what it's achieving.


Brett:             So to summarize. Unlike the annual franchise tax report that's filed with Delaware Division of Corporations, the public benefit statement is just provided to the shareholders. And that's done as mentioned.


Jarrod:           It's important to note that the law specifies that these reports can be done more often than every two years, as I said, available to the public or using a third party standard to give sort of the imprimatur of that rating agency, the gold seal of approval.


Brett:             And that's something we hear a lot. You talked about this third party standard, the B corp. We have a lot of clients that will come in and -- hey, I want to go ahead and file a B corp.

                     So we have to explain to them how the process goes. We form the public benefit with the Division of Corporations. And after that's accomplished, which only takes a couple business days, they could then go ahead and work for that additional certification.


Jarrod:           I believe you could have both, really, if you care to. Although, really, the Delaware Public Benefit Corporation, rather than simply having a seal of approval from an outside agency, you've got an entity that's effectively carefully crafted it to contain provisions that facilitate that public benefit. You've got certain protections put in place, certain reporting requirements. You've got a very coherent thought-out system of operation and regulations rather than just a slapdash third party stamp.


Brett:             So why are there -- and this is something that we hear from clients -- why are there these formalities involved internally to the shareholders? And why is there this additional reporting for the Public Benefit Corporations?


Jarrod:           I think it serves two purposes. One, it is a marketing element. There's the notion that we want to show that we're committed to doing good. We want to show that these ESG principles -- the environmental and social governance -- are critical to our company.

                     And the best way to do that, I think, is to adopt a corporate form specifically intended to both do good at the same time is making profits.

                     I think secondly, those aspects, like the reports, they give investors the ability to have comfort that what they're investing in actually has to live up to its, sort of, puffery. It has to live up to its broad statements about illiteracy or hunger or social injustice. It can't simply give mouth service to those concepts. And also, it gives shareholders a very clear criteria on how to evaluate, in a really granular way, how the corporation is going about fulfilling these principles.

                     A lot of what you hear now is corporations are being sued, not just Public Benefit Corporations, for these grandiose statements that they make on racial or social justice. But then none of it is ever followed up. And class actions are being certified now and people are suing, essentially saying you're making a material misrepresentation to the market. You're you're encouraging people to buy your stock with false statements about your principles and beliefs.


Michael:         So let's talk a little bit about the balancing of interest in this company, and continue on with the conversation that you guys have been kind of elaborating on.


Jarrod:           This is one of the hardest parts, I think, of the Public Benefit Corporation at this point.

                     In a general corporation, we have a ton of case law on the fiduciary duties of directors and officers. Oftentimes, you have standards of reference on what to look for and how to behave to comport with the required standard.

                     Here, however, there is no case law  to provide guidance on how you balance shareholder pecuniary interests with the interests of, you know, workers, the environment. There's no trodden path to walk down in order to make sure what complies.

                     And this balancing is referred to in the legislative history of the public benefit company concept as "tripartite balancing requirements."

                     Before, directors and officers could simply put their focus on shareholders. And now there's competing priorities, and that could make it extremely difficult on how to run a corporation in a compliant and fair way, according to both regulators and the public.

                     For instance, considering other constituencies is not just in option, it's mandatory. The corporate losses the board of directors shall manage the business and affairs of the Public Benefit Corporation in this balancing manner.

                     So, for instance, a corporation might find itself in a situation where it's profit would increase, and it could make a distribution to shareholders, perhaps a sizable one, if a moderately productive factory is closed. So it produces and it more than breaks even, but the benefits of closing that factory to shareholders are significant.

                     So what then happens? What is the director to do? Closure would result in layoffs, and let's say, it would decimate the local community where the factory is located.

                     On the other hand, you've got the traditional focus of a corporation, the shareholders' interests. And I don't have the answer necessarily, but I'm simply saying these are the kinds of conflicts that directors are going to face, is what constituency am I going to serve at this moment? And trying to balance is great, but at the end of the day, well, not always a zero sum game, there are winners and losers in this structure.

                     It's interesting also, however, that it could be said that the balancing strengthens the fiduciary duties that are owed to shareholders in a way. The tripartite balancing is not referred to as a fiduciary duty, only a consideration of the principles and the interests of these other individuals and these other persons are required.

                     So the corporation... The director does not owe a fiduciary duty to these other constituencies as it does shareholder. But it does have an obligation to consider them.

                     So, to my mind, shareholder privacy, placing shareholders first, really hasn't gone anywhere. The fiduciary duty will trump considerations.

                     But the requirement that a corporation look at other factors is just that, they have to look at them and consider them. And even that -- honestly, is for the first time.

                     As I said before, it's very much a European model. Germany, France, other countries like that have had these sorts of other constituency statutes. For instance, some corporations or even required to have representatives of these people on the board -- workers, environmental groups, things like that.


Brett:             You mentioned those individuals being on the board, but that's not a requirement with Delaware.


Jarrod:           That's right. Delaware imposes no additional requirements on the board of directors. Speaking of the board of directors...


Brett:             That brings up a good point. We say "board of directors," however, many of these Public Benefit Corporations that we're forming our small startups with lofty goals and ambitions. So for instance, it might be a one man show to start, one individual show to start, and that's not atypical.

                     And with a Public Benefit Corporation, one individual is able to be the shareholder, officer, and only director to start.


Jarrod:           Oh, definitely. I think that the vast majority of these are private companies, given that the interest is really sparking now, I think there are a number of these, as you said, these one man shows, one man or woman shows.

                     And we'll be seeing them develop into one day public companies.


Brett:             And they really like the way, as you mentioned before, how they can go ahead and market it to the public, and the perception that it implies to people looking at the company and potential shareholders as well.


Jarrod:           Definitely. And I think as much as directors face ambiguity in their decisions in that balancing, the PBC provisions do give them a lot of protection.

                     Normally a director... A company can waive monetary liability against the director for a breach of the fiduciary duty of care. So essentially, if the director is just negligent, grossly negligent, monetary liability, money damages from that director could be waived.

                     Here, that still applies, absent a statement in the certificate of incorporation that says otherwise. So there's that traditional protection directors have.

                     Secondly, the PBC-specific provisions protect directors, so long as they act informed, non conflicted way.

                     So -- for a balancing decision, directors could satisfy their fiduciary duty to shareholders if the relevant decision was informed, meaning they took the time to gain all necessary information or access to information or they talked to the appropriate experts or corporate officers, and is it also disinterested, meaning, is there a conflict? Was the company buying an asset from that director?

                     If there's conflict, if there's not a conflict. So essentially, if the decision was informed and there is no conflict, the director will satisfy his duty if the decision is -- and this is odd language -- "not such that no person of ordinary sound judgment would approve."

                     Forgive the double negative. But what the law is stating there is that, so long as somebody looking at it would... Somebody with ordinary sound judgment says it's okay, then it's okay.


Brett:             More or less, they did their due diligence. They could have relied upon an expert to make the particular decision.


Jarrod:           That's right. So they will still be protected so long as they took a reasonable step and they were both informed and not conflicted to the point where their loyalties were split.

                     Now, there is no liability under the PBC provisions to third parties with respect to the balancing or the public benefit -- and this part is critical.

                     So, a worker or a consumer or someone who benefits from a literacy program -- none of them can sue the corporation, saying -- you're not following your public benefit, or you're not following it strongly enough -- they have no standing to sue. So there's no liability to those people from this perspective.


Brett:             So if it falls short, the company [unintelligible][30:38] perhaps its lofty public benefit statement -- that's when that would come into play.


Jarrod:           The shareholders could bring an action if the directors are simply completely falling down on the job with respect to the benefit. But there's no liability to these third parties whose interests are being considered by the directors. And what that does is it simply prevents the PBC form from opening up an entirely new avenue of liability so that you would have to not only consider the interests of these other persons, you would be liable to them if you did not.


Brett:             So that brings up a point. Back to the public benefit statement and the importance of the public benefit statement that's listed on the certificate. What if there was a certain amount that the company pledges to provide $50,000 a year funding to the school district? But what if they're not able to?


Jarrod:           At that point under these provisions -- and that's a very good scenario, a very good question -- the school could not bring an action against the against the directors saying -- you promised...

                     There may be a contractual right of action, but there's no corporate right of action. There's no derivative lawsuits, there's no corporate action where they can enforce that promise. If they find something outside of the corporation context, then the school could go after the company contractually.

                     Another point to go back on that I mentioned is the traditional protection of directors against liability for negligence or gross negligence. It's important to note that in the PBC context, where there is not a conflict, essentially a failure to satisfy the balancing requirement does not constitute in actor omission, not in good faith, or a breach of the duty of loyalty.

                     So what we essentially have is, when you piece together all these director protections, effectively if a director fails to satisfy its balancing obligation and it is informed and not conflicted, then it fundamentally is protected from breach of fiduciary duty, at least from monetary liability in the duty of care. So the shareholders are really constrained from attempting to litigate the public benefit aspect, but they still have the ability to remove directors and to engage in the normal sort of corporate democracy and corporate action, concerning corporate action, that allows us to affect change.

                     If a shareholder does want to bring an action to assert their rights regarding the public benefit of the balancing, no lawsuit can be brought by a plaintiff for plaintiffs for a PBC, unless that person or group of person holds 2% of the outstanding shares in the case of private companies, or 2% of the outstanding shares, or shares with a market value of at least two million for public companies.

                     So not only are they putting hedges on the ability of shareholders and others to sue directors for the balancing act that they have to perform, it's also putting size requirements on the plaintiff. If I think it's attempting to prevent... It's attempting to prevent lawyers from coming out of the woodwork, as they do sometimes, buying a single share of a company and then bringing a mass class action or bringing a lawsuit.

                     Under these provisions, you really have to have someone with a substantive investment to bring a lawsuit. It has to be a real case or controversy and not simply a lawyer chasing the smell of blood in the water when a company starts making bad disclosures.

                     The next to last page I could deal with quite quickly, and Brett, certainly, as always, jump in.

                     A public benefit company has to be careful about what it says, as does any company. Because, as we quote previously -- misrepresentations or emissions about the benefit, the public benefit or the means of chasing it, or the success in promoting it, can lead to federal state enforcement actions for purely false and misleading statements.

                     So if you say -- we are going gangbusters, we have had 500,000 children that have been fed this month because of our efforts -- and that's fundamentally just isn't true, the company can be sued by shareholders for that misstatement, particularly if it's a public company, it could be quite easily sued for a fraud on the market.

                     So a company has to not only be careful about its public benefit company structuring and operation, as always, corporate insiders need to worry about what they're saying and making sure what they're saying, even if it's about what can be sometimes pie-in-the-sky public benefits -- kumbaya, we all want to live together and eat and read -- it could still get you into a liability.

                     The last topic I was hoping to address today is converting to or from a Public Benefit Corporation.

                     As I said, some of these existing companies may want to become PBCs, now that they have sort of the real growth behind the business entity form. Or conversely, some PBCs may find that it's not for them, particularly as they're about to go public. They might find that the constraints and the additional ambiguity simply isn't conducive to their business.


Brett:             Some companies that are the PBC, we have come across this, I feel like we've had one or two instances, where they've gone from a PBC to a traditional corporation because they were looking to bring aboard investors, and those investors mandated that that language be removed from their documents. So that's the one instance we've seen.

                     What would be another instance, or is that primarily the case when looking to bring aboard investors?


Jarrod:           That's the classic instance. And it's my favorite, because when you look at what that does, shareholders have been investing in this company up until the point of, say, its IPO, which -- is fairly long into the life of a company, it's fairly mature by then -- and the shareholders have been investing with the knowledge and expectation that this is a benefit company. It's providing, maybe part of their investment decision was that benefit. And here, all of a sudden, let's say some late stage venture capital or private equity group is eventually going to take this company public, they strip the PBC status from the company, the rug has been pulled out from these previous shareholders -- the entire... The ideals that went with their investment are now removed at the very last minute, right when the curtain is about to open.

                     Based on that principle, converting used to be very difficult. When the Public Benefit Corporation form was adopted in 2013, you had to have 90% of the total shares, 90% of shares, whether they could vote or not, approve the conversion, either to or from.


Brett:             So even non voting shares had a say within that.


Jarrod:           However, that's been amended. Most recently in 2020, it was amended such that only a bare majority of shares entitled to vote can cause a conversion. And that's a huge step down, I mean, when you think about it, it's not even all shares, it's only voting shares that are entitled to vote for that purpose.

                     So really, that breathes life into that risk that I mentioned about -- if it's too easy to come in and out of public benefit company status, investors aren't really able to get the proper comfort with the concept that this company is doing good and doing right, partially for its own sake, rather than just for the marketing.

                     There might be a temptation to use the PBC form just as a short term trapping to bring in certain investors, to bring in your government pension funds and government benefit plans, which which looks heavily at these ESG-type factors, these environmental, social and governance.

                     Also, dissenting shareholders previously used to be cashed out at the conversion of a PBC. You at least have the appraisal option. An appraisal option means you could go to the court and say -- I want the fair value of my shares from the company, regardless of whatever the market value might be, for instance, I want a fair value.

                     And there's been immense amounts of ink spilled trying to litigate what that means in various concepts.

                     But essentially they no longer have that option. So not only, for instance, in a private company have you lost what may be a contributing reason to your investment, you also are stuck in the company. You don't have the option to get your fair amount out.


Michael:         Essentially, the Public Benefit Corporation is a fairly new company, but it seems very, very complex.


Jarrod:           It is. In some ways, the newness gives rise to that complexity in the sense that no one quite knows hard and fast answers to a lot of the questions that, say, attorneys will get posed.

                     Fiduciary duty balancing, there isn't the materials that we could go to and say -- okay, here's 100 cases that, one of the times filled out the parameters for how you have to ask to satisfy your duties.


Brett:             We did talk how this is relatively new, started in 2013. One thing that we haven't discussed is, clients want to have the public benefit structure, but they don't want a corporation. They don't want to worry about the minutes, the meetings, the bylaws, the issuance, the stock.

                     So Delaware came in and they said, okay, great, we're going to go ahead and allow for a Public Benefit LLC.

                     The public benefit LLC is just like your traditional LLC. It's going to be managed by the members. It's going to be manager managed, manager managed. But same gist. It's allowed to go ahead and provide its specific public benefit.

                     Now, I know you have a strong opinion on the Public Benefit LLC. Talk to us a little bit about what you feel the drawbacks of it.


Jarrod:           Well, I definitely do recognize what you said there in terms of the benefits. The LLC is the most popular entity out there. I think something like 70% of Delaware formations or LLCs now. And there's no doubt that people will want the flexibility of an LLC with the trappings of the Public Benefit Corporation.

                     But my pet peeve with this is that there is nothing in the concept of the public benefit provisions that could not have already been done in an LLC through the LLC agreement.


Brett:             So the internal operating agreement, which is going to spell out the ownership, the management, that internal type LLC agreement from the get go could have information and causes within it that states -- 10% of proceeds, for instance, is going to go to this particular feeding of children.

                     So that could be put into the LLC agreement. But this is a great way to potentially market the LLC and allow for the general public to view this as an entity that's looking to make a profit, but also to do great for the community or the world.


Jarrod:           That's very true. And I certainly can't doubt that these entities are doing the same type of good in what they're doing. But, for instance, the things that define the Public Benefit Corporation, the reason they had to make a separate entity, is that they had to change some key fundamental areas of law and case law that governed the corporation.

                     Whereas the LLC, you could draft in the LLC agreement duties to other constituencies and whatnot that are just like the public benefit companies, or even more stringent in weird ways.

                     You could adopt the reporting requirements, the purpose. So everything could be done with the LLC because it is so flexible and it's governed only by the imagination of the members and managers, to, of course, the limits of rationality.

                     So the LLC, the mere fact that it's not changing any of the law, it's simply attaching a moniker to what already could have been done, makes it a little underwhelming to me. But it's still certainly is a net excellent option. It's a great option, particularly given the attractiveness and the advantages of an LLC.


Michael:         Does it still require the biannual report, much like the Public Benefit Corporation? Or is it different because -- with an LLC, the owner's information is held confidential and privately here in Delaware. So is it still the kind of same thing, or is it different?


Jarrod:           It is still the same the same reporting. That's what they sort of mandate. Although you could have provided that reporting in an LLC, they're saying now you have to.

                     That is one of the key features to my mind. That reporting is really a substantive way of giving transparency to the shareholders. And if you brought it to the public, to the public. That really shows that the public benefit company is more than just window dressing. It's more than just a sham type of entity.

                     I think the reason I'm respecting it increasingly every day is simply for the fact that the mechanisms that have been put in place attempt and make a start at giving teeth to the law, to making sure that th

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