B Corp Certification and Public Benefit Corporations (PBC)
Public benefit corporations are designed to balance purpose and profit. They are legally required to consider the impact their decisions have on more than just the bottom line, such as the impact on the community, environment, workers and customers.
Delaware General Corporation Law, Section 361 governs PBCs which are for-profit entities, owned by stockholders and are expected to make a profit and issue dividend(s) to the shareholders. However, unlike a standard Delaware corporation, a PBC is not driven solely by the bottom line. It is designed to balance the social impact of inclusivity, sustainable economy and to help make the world a better place. Directors of a PBC, in addition to the standard fiduciary duty, have an obligation to run the company for the benefit of public interest and sustainability.
Although many states, and countries for that matter, provide for public benefit corporations, this post focuses on requirements to form a Delaware Public Benefit Corporation. To learn more about other states, check out B Lab’s on-going list of state by state legislation.
Delaware Corporate Requirements
Corporate Name Requirements: The name shall contain the words “public benefit corporation”, “P.B.C.” or “PBC” as a corporate ending.
The Purpose: The specific public benefit purpose of the corporation is to [brief description, for instance, the improvement of people’s overall well-being and quality of life, including their physical, emotional and financial health, by fostering healthy everyday habits, and to increase corporate and community well-being] and to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.
The certificate of incorporation or bylaws of a public benefit corporation may include the following:
- Provide a “Benefit Report” (a statement as to the corporation’s promotion of the public benefit(s) as they are identified in the certificate of incorporation and must be provided biennially to stockholders) which shall be provided to stockholders more frequently than biennially;
- The “Benefit Report” may be made available to the public;
- A third-party standard may be used in connection with and/or attain a periodic third-party certification addressing the corporation’s promotion of the public benefit or public benefits identified in the certificate of incorporation and/or the best interests of those materially affected by the corporation’s conduct.
- The certificate of incorporation may include a provision that any disinterested decision by directors shall not constitute an act or omission not in good faith or breach of the duty of loyalty for purposes of imposing monetary liability pursuant to any provision adopted pursuant to G.C. L. § 102(b)(7) or determining indemnification rights pursuant to D.G.C.L. § 145.
All stock certificates and notices of meeting must contain statements acknowledging that the corporation is Delaware Public Benefit Corporation.
Public Benefit Corporations: Fiduciary Duties of Directors
Directors of public benefit corporations must manage the corporation in a manner that takes into consideration (i) the stockholders’ pecuniary interests, (ii) the interests of those materially affected by the corporation’s conduct (workers, customers, environment and community), and (iii) the public benefit(s) identified in the purpose stated in its certificate of incorporation.
The bylaws may provide that one director serve as the “benefit director” with the primary responsibility of submitting the biennial Benefit Report.
Periodic Statements to Shareholders (a/k/a Benefit Report)
A PBC must provide to its stockholders, no less than biennially, a benefit statement as to the corporation’s promotion of the public benefit(s) as they are identified in the certificate of incorporation. The statement shall include:
- The objectives the board of directors has established to promote such public benefit or public benefits and interests;
- The standards the board of directors has adopted to measure the corporation’s progress in promoting such public benefit or public benefits and interests;
- Objective factual information based on those standards regarding the corporation’s success in meeting the objectives for promoting such public benefit or public benefits and interests; and
- An assessment of the corporation’s success in meeting the objectives and promoting such public benefit or public benefits and interests.
All stock certificates and notices of meeting must contain statements acknowledging that the corporation is Delaware Public Benefit Corporation.
Merging a Standard Delaware Corporation into a PBC
A standard Delaware corporation can amend its certificate of incorporation to become a PBC by a ninety percent affirmative vote of the outstanding shares of each class, whether voting or non-voting, of a corporation’s stock. A Delaware nonstock corporation cannot merge into a PBC.
Termination of Public Benefit Corporations Status to Regular Corporation Status
A PBC may convert to a standard Delaware corporation by a two-thirds affirmative vote of the outstanding shares of each class, whether voting or non-voting, of a corporation’s stock.
What is a B Corp Certification
B Corp certification certifies a company’s entire social and environmental performance. B Lab is a nonprofit 501(c)(3) company that evaluates a business via its B Impact Assessment as to the business model’s impact on the community, the environment, its workers and customers. Based on the assessment, the B Certified Corp will receive an Overall B Impact Score that can be between 0 to 200 that is posted the B Lab website. The Overall B Impact Score proves that a business is meeting the highest standards of verified performance.
A business does not have to be formed as a PBC before it can apply for B Corp Certification. Any for-profit company, private or public, is eligible to become B Certified. A PBC may even be a public company, such as Natura. Other certified B corporations may be subsidiaries of a publicly traded company, such as Sundial Brands, which is owned by Unilever. However, a standard corporation must elect (or convert to) benefit corporation status within 4 years of the effective date or within 2 years of the initial certification, whichever is later. An LLC must amend its operating agreement to incorporate certain terms within 90 days of receiving certification.
The B Corp Certification Process
The B certification process and requirements differ based on the company’s size and structure. Legal requirements vary depending upon the country, state of formation, and the type of business structure. And, once certified, the business obtains a logo, portfolio of services, and vibrant community of practice among B corps.
The hot topic of sustainability is increasing the popularity of Public Benefit Corporations. Many well known companies are B Certified Corps, such as Etsy, Patagonia Works, King Arthur Flower, Ben and Jerry’s. And if you’re a lawyer needing assistance with the formation of a B Corp, we’re here to help! Learn more about how easy it is to get started with our team and contact us for more information today.
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