The difference between Public Benefit Corporations and B Corps
Marc Hoag via Midjourney
This is educational material and does not constitute legal advice nor is any attorney/client relationship created with this article, hence you should contact and engage an attorney if you have any legal questions.
What is a Delaware Public Benefit Corporation (PBC)?
A Delaware PBC is a for-profit corporate entity — an otherwise typical C Corporation — designed to operate sustainably and responsibly, balancing public benefits with pecuniary profitability. Unlike traditional corporations, Delaware PBCs incorporate social and environmental objectives into their business operations and governance structures.
Key Features
Dual Purpose: Generate profits and promote one or more public benefits.
Stakeholder Responsibility: Consider the impact on stakeholders, not just shareholders.
Transparency: Biennial reports to shareholders on public benefit performance.
While traditional corporations focus exclusively on maximizing shareholder profits, PBCs operate on a "triple bottom line" philosophy—financial, social, and environmental returns. Directors of PBCs are legally obligated to consider the best interests of all stakeholders, not just shareholders.
PBCs vs. B Corporations
What are B Corporations?
B Corporations are certified by B Lab, a non-profit organization. This certification affirms that a company meets stringent standards of social and environmental performance, transparency, and accountability. Key differences between a B Corporation (really, a B Lab-certified C Corp) and a PBC are:
Legal Structure vs. Certification: PBC is a legal structure. B Corp is a certification.
Governing Laws: PBCs are governed by state corporate laws, while B Corps adhere to standards set by B Lab.
Reporting Requirements: PBCs must issue biennial reports to shareholders. B Corps undergo recertification every three years.
How to Form a Delaware PBC: The Ultimate Checklist
Identify Public Benefit Objectives: Articulate the social and/or environmental goals.
Select a Delaware Registered Agent: Mandatory for incorporating in Delaware.
Prepare the Certificate of Incorporation: Must include specific public benefit provisions.
Name Your Corporation: Must end with either "Public Benefit Corporation," "P.B.C.," or "PBC." Don’t forget to do a Delaware name check.
Board Selection: Appoint directors who align with your PBC’s mission.
Draft Bylaws: Tailor to meet PBC-specific governance and reporting requirements.
Capital Structure: Decide the type and number of shares to be issued.
Operational Procedures: Establish processes for decision-making and dispute resolution.
Biennial Reporting: Prepare for mandated reports on public benefit performance.
Legal Counsel: Consult experienced legal professionals familiar with PBCs.
The good folks over at Cooley have put together a great 5-point checklist to determine whether your startup should register as a Delaware Public Benefit Corporation:
Clear social or environmental benefit: Your company must have a discernible social or environmental public benefit purpose. Delaware PBC law allows for a broad range of public benefits but requires a specific goal and sustainable operations. In fact, you will need to provide a brief one-line description of this benefit when incorporating as a PBC.
This benefit is key to your business model: The public benefit purpose should be integral to your business model; driving success should concurrently increase the public impact.
You can transparently track the public benefit purpose: Embrace transparency by tracking and reporting on your public benefit objectives biennially to shareholders, as required by PBC statute.
You are able to accept some legal risk: Be prepared for legal ambiguity due to the PBC's relatively recent introduction in Delaware (2013), especially around balancing profit and public benefit purposes in directors' fiduciary duties.
You are able to educate investors on the PBC: Anticipate educating potential investors about the PBC form, its distinctiveness from traditional corporations, and its alignment with your company’s mission.
Investment and Market Trends
Rapid Growth in Impact Investing
Impact investments are not merely a niche but a rapidly growing sector. The global impact investing market was estimated at $715 billion in 2019 and has soared to an impressive $1.164 trillion in 2022. This exponential growth suggests a promising landscape for Public Benefit Corporations, which align well with the ethos of impact investing.
Consumer Behavior and Brand Loyalty
The consumer landscape is shifting towards sustainable and socially responsible business practices. According to studies, approximately 66% of consumers are willing to pay more for sustainable goods. For PBCs, this means not just a dedicated customer base but also the potential for brand loyalty and higher lifetime value per customer.
ESG Criteria: A Magnet for Investment
The rise of ESG (Environmental, Social, and Governance) criteria has made it a key consideration for investors. Companies that rank high on ESG metrics are increasingly attracting more investment capital. For PBCs, which inherently focus on social and environmental impact, this is an added advantage. Aligning the company's goals with ESG criteria can open doors to a broader range of investment opportunities, including ESG-focused funds and green bonds.
Traditional Financing and Hybrid Models
While impact investing and ESG compliance are growing trends, PBCs are not limited to these financing options. They can also attract traditional venture capital, bank loans, and even crowdfunding. Some PBCs are exploring hybrid models that combine impact investment with traditional financing to meet their capital needs.
Delaware Public Benefit Corporations offer a dynamic blend of social responsibility and profit-making. They are increasingly becoming the structure of choice for modern, ethically-minded companies. Please contact Marc Hoag Law to see if your startup should incorporate as a PBC.