Public Benefit Corporations
Delaware public benefit corporations (also known as PBCs) are an increasingly popular method that founders use to embed their principles into the DNA of their business. Delaware law enables founders of PBCs to adopt corporate governance principles that let them run their businesses as responsible and sustainable organizations. Delaware PBCs are managed for the benefit of all of their stakeholders — including workers, customers, and the community — and not just stockholders.
A Delaware PBC is governed by the same rules as a traditional corporation, with a few simple alterations. Most importantly, the board of directors must balance the financial interests of its stockholders together with one or more specified public benefits, as well as the interests of anyone materially affected by the corporation's conduct. This is in contrast to a traditional Delaware corporation, which is required to maximize stockholder value, regardless of the outcome for other stakeholders. Delaware PBCs must also issue a report on their sustainability performance to stockholders once every two years.
Why Choose PBC?
One common reason that founders choose to form their startups as Delaware PBCs is for increased flexibility. For example, actions that maximize stockholder value might have severe negative side effects on workers or customers. A Delaware PBC would be allowed to take negative effects on workers and customers into account in deciding what to do, whereas a traditional corporation cannot take those interests into account, unless they contributed to stockholder value.
Startups also elect to be Delaware PBCs to attract customers, employees, and investors who want to be affiliated with an organization that has a purpose beyond profit. The willingness to meet Delaware PBC requirements signals commitment to the specified public benefit(s) and the broader public.
Some people think Delaware PBCs are taxed differently than regular corporations; however, being a PBC does not impact a corporation's federal tax status. Like any Delaware corporation, a Delaware PBC is a C corporation1 by default.
B Corp Certification
B Corp certification is different from being a PBC, although the two are often confused. A B Corp is a for-profit corporation certified to meet rigorous standards of social and environmental performance, accountability, and transparency. The certification is administered by B Lab, a nonprofit organization. For Delaware corporations, the B Corp certification process requires PBC status. Thus, many Delaware PBCs are B Corp certified, but many more are not.
A Delaware PBC is eligible to be certified by B Lab as a Pending B Corp for the first year of its existence. Each Pending B Corp is given one year by B Lab to certify as a B Corp, after which it loses Pending B Corp status.
There is no requirement that a Delaware PBC become a Pending or certified B Corp.
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Though uncommon for startups, a Delaware PBC can elect to be treated as an S corporation for federal tax purposes provided it meets certain requirements.
