Public Benefit Corporation Act of Colorado


During the 2013 legislative session, the Colorado Legislature enacted H.B. 13-1138, the Public Benefit Corporation Act of Colorado (“PBC Act”).  This act, which becomes effective April 1, 2014, creates a new kind of corporate entity, one in which, as its title implies “is intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner.”

While banks and other lenders may not encounter a public benefit corporation (“PBC”) on a regular basis, credit officers need to know that such entities have been authorized and that corporations with names including the words “public benefit corporation,” “P.B.C.” or “PBC” have a purpose or goal that goes beyond benefiting their shareholders.

The PBC Act requires that the articles of incorporation of a PBC must:

  1. Set forth one or more specific public benefits to be promoted by the PBC;
  2. State at the beginning of the articles of incorporation that it is a PBC;
  3. Include in the entity’s name the words “Public Benefit Corporation” or the abbreviations “P.B.C.” or “PBC;” and
  4. Must clearly indicate that the entity is a PBC in its share certificates or for shares without certificates in the statement required under Colorado Revised Statutes § 7-106-207 issued by a PBC.

It also defines the duties of directors of a PBC as follows:

The board of directors shall manage or direct the business and affairs of a public benefit corporation in a manner that balances the pecuniary interests of the shareholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit identified in the articles of incorporation.

The PBC Act does not affect the rights of creditors, particularly secured creditors.  The focus of a PBC will not be the pecuniary interest of shareholders, as it is with conventional corporations.  A PBC will also be seeking to benefit some public interest and this may result in subordinating some of its financial decisions to its public benefits purpose.  In some cases, this could affect the financial viability of a PBC insofar as creditors are concerned.  Lenders will need to understand the scope of the PBC’s public benefit interests (as set forth in the articles of incorporation) and how the board of directors intends to manage the pecuniary interest of shareholders along with its public benefits strategy.  Will, for example, public benefits expenditures be deductible as business expenses?

Public benefit entities have been authorized in other states.  The PBC Act is not the same as those adopted in other jurisdictions.  Any precedent or procedure established by creditors outside of Colorado will not necessarily be applicable to PBCs.

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.

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