Great news for Social Innovators!
Delaware has passed into law the formation of Public Benefits Corporation and the forms are up and running as of August 1, 2013.
The public benefits corporation (PBC) is a new option for businesses and entrepreneurs that are for-profit enterprises with a social mission. This will allow enterprises to show the world that they are committed to their social mission all the way down to their structure and legal status.
Delaware’s Public Benefit Corporation (PBC) does have some parallels to Washington’s Social Purpose Corporation (SPC) however, the following is a list of key points that I believe are the start of some real legs behind the benefits/social purpose corporation movement with Delaware likely leading the way.
- Voting requirements. Delaware requires 90% of the corporations voting shareholders to approve the change to a public benefits corporation (Traditional SPC’s require 66%)
- Public Benefit Statement. The specific public benefit the corporation intends to promote must be identified in the corporate documents. This means that the public benefit should be expressly called out in the articles of incorporation.
- Decision Making by Directors. Directors of a Delaware PBC are required to balance the financial interests of its stockholders, the interests of those materially affected by its conduct, and the identified public benefit. There are no guidelines on how to balance this but the law does state that “directors will be deemed to satisfy their fiduciary duties to stockholders and the corporation if the directors’ decision is both informed and disinterested and not such that no person of ordinary, sound judgment would approve.” (This differs from SPC’s in that SPCS’s are permitted but not required to take into account their social purpose when taking action).
- Standing to Sue. Stockholders of PBC’s in Delaware must own at least 2% of the outstanding shares in order to enforce a suit against directors regarding their duties under the new law.
- Reports. PBC’s are expected to make periodic statements/reports to shareholders but not necessarily to the public.
Social entrepreneurs and businesses alike can now enjoy both the riches of Delaware corporate laws and the benefits of committing to their respective social mission and registering oneself as a public benefits entity. Not to mention, those who are incorporated in Delaware and trying to raise funding for their social enterprise can take advantage of the public benefits corporation that carry the same standard benefits of a ‘C corp” in Delaware.
If you are interested in learning more on how your might qualify as a public benefits corporation in Delaware or a Social Purpose Corporation right here in Washington– give us a call for a free initial consult.