Delaware Public Benefit Corporations: A Brief Introduction

by Akin Gump Strauss Hauer & Feld LLP
Contact

On August 1, 2013, the Delaware legislature added a potentially important new subchapter to the General Corporation Law, allowing corporations to elect to be formed as, or convert to, a public benefit corporation (PBC) (Subchapter XV of Chapter 1, Title 8 of the Delaware Code).  What are the requirements for becoming a PBC?  And why would a corporation choose to become one?

Background (for Non-Delaware PBCs)

Traditionally, directors of corporations have had a fiduciary duty to maximize stockholder value in making decisions.  However, PBCs, or social purpose corporations as they are known in some jurisdictions, permit a corporation’s directors to also take into account the social purposes of their actions.  PBCs are typically required to pursue a general public benefit and make available to the public an annual report measuring their performance in meeting their social goals. 

Delaware PBCs

Delaware’s PBC statute differs from the traditional model in key aspects.  Delaware PBCs are required to state a specific public benefit, which means “a positive effect (or reduction of negative effects) on one or more categories of persons, entities, communities or interests (other than stockholders in their capacities as stockholders) including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.”  Such specific benefit must be identified in the charter of the entity.  A PBC’s name must include the words “public benefit corporation” or the designation “PBC” or “P.B.C.”   Stockholder notices and stock certificates, if any, must also clearly identify the entity’s PBC status. 

Subject to the above requirements, Delaware corporations may be formed as, or convert to, PBCs.  Prior to converting, established Delaware corporations must obtain the approval of at least 90% of the outstanding shares of each class of stock of such corporation, whether voting or nonvoting, but PBCs need only a 66 2/3% vote to terminate their status.

Unlike the public annual reports typically required of PBCs outside Delaware, a Delaware PBC must provide only its stockholders with a statement regarding the progress of its social goals at least once every two years.  PBCs may elect to use a third-party standard or certification to address how they have met their goals, instead of the mandatory third-party certification in other jurisdictions. 

Directors of a PBC have a duty to balance the pecuniary interests of the stockholders, the best interests of those materially affected by the PBC’s conduct and the specific public benefit identified in the PBC’s charter.  Delaware addressed the potential  liability regarding these duties by allowing only stockholders holding at least 2 percent of the PBC’s shares or, if a corporation is publicly traded, at least $2,000,000 in market value to maintain a derivative lawsuit for breach of such duties.  A director will be deemed to have met his or her fiduciary duties if the director acted in a manner that is “informed and disinterested and not such that no person of ordinary, sound judgment would approve.”  In addition, the PBC charter may include a provision that any disinterested failure to satisfy such duties will not constitute an act or omission not in good faith or a breach of the duty of loyalty. 

Candidates for PBC Status

PBC status will be attractive to corporations that wish to pursue social good while also seeking profit for their stockholders.  Entities without a clearly defined social benefit may not be interested in PBC status.  In addition, publicly traded entities, even those with identifiable benefits to the public, may find the 90% stockholder approval threshold in Delaware too high a bar.  However, private corporations that see social good as being complementary to, rather than at odds with, stockholder maximization may find PBC status an attractive option.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Akin Gump Strauss Hauer & Feld LLP | Attorney Advertising

Written by:

Akin Gump Strauss Hauer & Feld LLP
Contact
more
less

Akin Gump Strauss Hauer & Feld LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.