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So you’ve decided to incorporate as (or convert into) a Delaware Public Benefit Corporation (PBC). In your Certificate of Incorporation you have chosen a public benefit, or mission statement. Now what? This article discusses the ongoing compliance requirements that are unique to a PBC.

MANAGEMENT AND OPERATIONS

How do you direct and manage the company?

Purpose

A Public Benefit Corporation has a legal obligation to promote a public benefit and operate in a responsible and sustainable manner.

What is a “public benefit”?

  • A positive effect (or reduction of negative effects) including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature

Public Benefit Corporations are required to promote at least one specific public benefit. PBC management should regularly refer back to the company’s identified public benefit purpose and assess how the company is pursuing mission.

What does operating in a “responsible and sustainable manner” mean?

    • Management should consider the company’s impact on the environment, its workforce and the communities in which it operates to minimize negative externalities.

Fiduciary Duties

PBC directors have a duty to balance the stockholders’ interests, the public benefit and the interests of those affected by the company’s actions.

What is a director required to do?

  • Directors must balance the goals of (i) providing a competitive return to stockholders, (ii) having a net positive impact on society and the environment, and (iii) creating a net positive impact with respect to the benefits specified in the corporate charter.
  • Under Delaware law, directors are shielded from liability when they make informed and disinterested decisions that serve a rational purpose.

Board meetings should include a discussion of these different stakeholder interests and board actions should include language that the Board has balanced the various applicable interests.

TRANSPARENCY

What are your reporting requirements and when are you required to give notice that the company is a PBC?

Benefit Report

At least every two years, a Delaware Public Benefit Corporation must provide its stockholders with a report on the company’s promotion of the public benefit specified in its charter and the interests of those affected by the company’s actions.

What must the Benefit Report include?

  1. The objectives established by the board of directors to promote the identified public benefit and best interests of those affected by the company’s actions;
  2. The standards adopted by the board to measure progress towards these objectives;
  3. Factual information based on those standards regarding the company’s success in meeting its objectives; and
  4. An assessment of the company’s success in meeting the objectives and promoting its identified public benefit.

Many companies use the Benefit Report as opportunity to tout the company’s public benefit purpose and social and environmental impact and choose to publish the report on their website, while this is not required.

Although the requirement is to produce the Benefit Report every two years, the company should outline the objectives and standards the company will use to report on its public benefit purpose and social responsibility from the outset and measure and track its public benefit goals as it does financial performance.

Required Notices

Before any issuance of stock, the company must notify the purchaser that it is a Public Benefit Corporation, and all stock certificates and notices of stockholder meetings must clearly state that the company is a PBC. Include a notice in any stock purchase agreement or option agreement that the company is a PBC.

ACCOUNTABILITY

What rights and remedies are available to stockholders?

Stockholder Lawsuits

Stockholders of a PBC can maintain a derivative lawsuit claiming directors failed to balance stockholder and public benefit interests.

Which stockholders can bring suit?

  • Only stockholders owning individually or collectively at least 2% of the company’s outstanding shares can bring a lawsuit for failure to pursue the company’s public benefit.

To minimize potential liability, include language in board actions that the board has balanced the required interests and considered the company’s specific public benefit for major decisions.

Last reviewed: June 13, 2022
Part of the Understanding benefit corporations collection
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