Public Benefit Corporations (PBC) are becoming more and more common. In fact, some brands you hear about every day are actually PBC’s, including Patagonia, Method Products, and Kickstarter.
But what are they? Are they non-profits? Are they corporations? The answer is – they’re a bit of both. This post will give you a high level overview of 5 things you need to know about PBC’s.
What is a Public Benefit Corporation?
A Public Benefit Corporation (PBC) is a business entity, created under state law, whose purpose and articles commit it to creating a “general public benefit”. A general public benefit is defined as a “material positive impact on society and the environment, taken a whole, assessed by a third-party standard, from the business and operations of a benefit corporation.”
A PBC is NOT a non-profit – meaning they are not limited in how much profit they can generate, and they may freely distribute profits to shareholders or investors.
How does a Public Benefit Corporation differ from a Regular Corporation?
The main difference between a PBC and a regular corporation is the responsibilities of the Board of Directors, leadership, and the company as a whole.
Regular corporations, and the people that run them, are bound to serve one main purpose: to maximize the profit of shareholders of the company. In fact, there have been plenty of lawsuits from shareholders against corporations because the actions of the corporation was not in the interest of making the shareholders maximum profit.
PBC’s on the other hand can serve a greater purpose – even if the moves they make are not going to make them the most money – as long as there is a “general public benefit”.
What requirements do Public Benefit Corporations have?
PBC’s are governed by state legislation, and follows the structure of the Model Benefit Corporation Law (MBCL). So far, 40 states either have passed legislation authorizing creation of PBC’s, or have pending legislation.
Formation of a PBC is similar to forming a corporation or LLC – file with a state, write some articles and bylaws.
Some key requirements of Public Benefit Corporations include:
- The PBC Articles of Formation must include a commitment to create a “general public benefit.”
- Typical provisions of benefit corporation Articles include Purpose, Accountability, Transparency, Right of Action, and Change of Control/Purpose/Structure.
- The “general public benefit” is measured against 6 key constituencies: shareholders, employees, suppliers, customers, community, and local and global environment.
- PBC’s are required to prepare, and make publicly available an “Annual Benefit Report” detailing their performance based on a “third party assessment”.
- Management is required to consider the impact of their decisions on all stakeholders.
- As of now, you can’t automatically lose your Public Benefit Corporation status.
What is this “Third Party Assessment” you speak of?
As mentioned above – The MBCL requires an annual report of performance measured against a third party assessment. The third party standard itself has certain criteria they have to meet:
- Comprehensive – measured against the 6 constituencies mentioned above.
- Independent – developed by an entity that is not under control of the PBC.
- Credible – developed by an entity with expertise in assessment of social goals.
- Transparent – the process of formulating the standard must be accessible to the public.
Third Party Assessment standards are available with a simple google search. Global Impact Investment Rating System (GIIRS), and B-Certification are two standards available. You can also employ an accounting or consulting firm to conduct the annual assessment on your behalf.
Is a Public Benefit Corporation right for my startup?
That’s a loaded question, and I’ll give you the typical lawyer answer – it depends. You should weigh what’s important to you, your employees, and your mission in determining whether you should be a public benefit corporation.
You should know: Venture Capital firms still prefer Delaware C-Corporations, but there are newer, more conscious VC’s that care more about benefit corporations. Also, there is an annual cost of time and expense in maintaining a public benefit corporation, and you really should make sure that what you are doing as a company is serving some “general public benefit”.
Let us Help.
Have more questions about whether you should be a Public Benefit Corporation, or want to set one up for your next company? Kader Law offers formation packages.
Choose a time to connect below for a free initial consultation.
This post is not legal advice, and does not establish any attorney client privilege between Law Office of K.S. Kader, PLLC and you, the reader.