Is a Public Benefit Corporation Right for Your Mission-Driven Business?
This article is geared towards founders who have an idea for a mission-driven business and want to know what to do next.
Why does this article focus on Delaware?
Delaware has become internationally recognized as home to over a million legal entities, including the majority of all Fortune 500 companies. With a well-respected and established corporate court system and business-friendly tax, legal, and regulation policies, Delaware is an ideal location for incorporation with key incentives including tax benefits, efficiency, and privacy. The state’s statutes, such as the Delaware General Corporate Law (“DGCL”), are highly regarded for providing stockholders and corporations with maximum flexibility and a business-friendly legal environment.
What is a “traditional” corporation?
A corporation is a legal entity that is separate and distinct from its owners (stockholders) and the individuals who run the business (the board of directors). Often referred to as a “legal person,” a corporation possesses many of the same rights and responsibilities as individuals, which means that it can own assets, enter contracts, sue and be sued, pay taxes, and loan and borrow money.
What does “incorporate” mean?
Incorporation refers to the legal process of forming a corporate structure or company. This process involves various stages, such as creating articles of incorporation, implementing bylaws, electing officers, and issuing stock to shareholders. By definition, corporations are completely separate entities from their owners (stockholders). This means that corporations are limited liability entities, so their owners are not personally responsible for the company's debts but may take part in the profits through dividends and stock appreciation. Care should be taken to ensure “corporate formalities” are followed to maintain this limitation of liability.
What is a “PBC”?
A public benefit corporation (“PBC”) is a corporation created to generate a public good (“Public Benefit”) and to operate in a sustainable and responsible manner. A corporation may be formed as a PBC from the outset, or it may be converted to a PBC. Unlike traditional corporations that prioritize the maximization of shareholder value, PBCs balance stakeholders’ financial interests, the interests of those who are involved and affected by the corporation (such as employees, customers, creditors, and suppliers), and the advancement of their intended Public Benefit. Furthermore, PBCs are required to undergo auditing and accountability assessments and report their progress on delivering their Public Benefit. While the terms are sometimes used interchangeably, PBCs are distinct from B Corporations (“B Corps”). The term B Corp refers to those for-profit entities (including corporations and LLCs) that have paid a fee to be reviewed and certificated by a national nonprofit organization called B Labs.
Do you have a handy chart comparing the two?
Why yes, we do.
Do I need to make this decision now?
No – Delaware law allows for conversion from a corporation to a PBC but this adds additional cost (filing fees and legal fees) and approval requirements.
OK, so should I make this decision now?
If you think you might want to be a PBC, incorporating as one from the get-go will save you time and money.
What if I have more questions?
At Mintz, we have a plethora of attorneys who can help you navigate incorporation, from our MintzEdge program to our Energy & Sustainability practice group.