How to Form a Delaware Public Benefit Corporation

Unlike typical corporations, public benefit corporations are not required to maximize shareholder value to the exclusion of other purposes. Instead of prioritizing the financial interests of investors, directors of public benefit corporations are afforded protections enabling them to advance the stated public benefit purpose without risk of allegations of waste by shareholders. These protections provide flexibility, allowing a corporation to be managed in a manner that balances the pecuniary interests of the stockholders with the best interests of those materially impacted by the company’s dealings. This includes the company’s stated public benefit. This public benefit is identified within the Certificate of Incorporation.

Due to their status, public benefit corporations are subject to an enhanced level of transparency with their shareholders. On top of an annual meeting, public benefit corporations are required under §366 of the Delaware General Corporation Law to provide stockholders with biennial statements addressing the progress that the corporation has made in promoting its stated public benefit or public benefits. The statement must include:

(1) The objectives the Board of Directors has established to promote such public benefit;

(2) The standards the Board of Directors have adopted to measure the corporation’s progress in promoting such public benefit;

(3) Objective factual information based on those standards regarding the corporation’s success in meeting the objectives for promoting such public benefit; and

(4) An assessment of the corporation’s success in meeting the objectives and promoting such public benefit.

If desired, the Certificate of Incorporation or the Bylaws of a public benefit corporation can require that the company provide the statement more frequently, as well as allow the statement to be made available to the public. Delaware is a better choice for your PBC state of incorporation for this reason. Many states outside Delaware require by default public reporting of benefits. In Delaware, public reporting is optional.

Many public benefit corporations seek third party certification of the sustainability of their business practices from a service such as One Percent for the Planet and B-Lab, however, third party certification is not required under the Delaware General Corporation Law.

Filing as a Delaware Public Benefit Corporation does not carry any specific tax advantages. A public benefit corporation is taxed as a C-Corporation, unless it elects to be taxed as an S-Corporation, which generally means the company does not pay income taxes.

Forming a new company as a Delaware Public Benefit Corporation is easy. A specific public benefit purpose clause must be included in the Certificate of Incorporation. The corporate ending of a Delaware Public Benefit Corporation can be Inc., Co, or any other approved corporate ending. Also permitted, is PBC as a corporate ending.

Existing corporations are also able to file an amendment to become a public benefit corporation, however, this requires more steps. In order to become a public benefit corporation, existing corporations must:

(1) Author an amendment to the Articles of Incorporation stating the corporation’s status as a public benefit corporation;

(2) The amendment must be voted upon and passed by shareholders with a two thirds supermajority vote.

Filing as a public benefit corporation and promoting sustainable business practices may provide numerous business benefits. Over 70 million consumers in the US label themselves as being “conscious consumers”. Every day, more consumers are choosing to look beyond the products they are purchasing and becoming more aware of the business practices of their favorite companies and brands. A survey showed that 96% of consumers who were made aware of the public benefit corporation campaign said that they would begin to look for products made by public benefit corporations while shopping. It is apparent that companies will need to be sustainable in order to remain competitive in the marketplace.