Businesses dedicated to social missions may wish to explore the advantages of branding themselves as public benefit companies in order to attract like-minded investors, customers and employees.
Delaware recently updated its LLC laws to permit companies to elect for themselves to become public benefit corporations, reflecting Delaware’s nationally influential role in corporate law.
What is a Public Benefit LLC?
Public benefit LLCs are for-profit companies designed to meet the emerging needs of today’s environmentally aware consumer. Their statutory business form enables entrepreneurs and investors to select an entity type which balances profit with social and environmental concerns.
PBCs must state one or more public benefit goals or purposes in their certificate of incorporation, which could include artistic, charitable, cultural, economic, educational, environmental, literary medical or scientific endeavors.
Public benefit LLCs must comply with Delaware’s corporate requirements, pay taxes on profits and file annual benefit reports that are transparent to members and the general public. These reports must include an objective statement, standards established to promote these objectives and an assessment of whether the PBC is meeting them effectively. Delaware also mandates PBCs disclose conflicts of interest; as part of their annual reports they must include third-party standards which can help assess progress toward goals set by their PBC.
How to Form a Public Benefit LLC
Delaware public benefit LLCs (DPBLs) are legal entities which balance shareholder interests with inclusiveness and sustainability as core components. This alternative to Certified B Corporations has rapidly increased in popularity.
A PBLLC combines the operational flexibility of an LLC with additional statutory requirements for transparency and accountability. Management must consider stakeholder interests when fulfilling its fiduciary responsibilities, while producing biennial reports outlining specific public benefits or general social good pursuit. Although not required to share this information publicly, PBLLCs may choose to share them openly if desired.
PBCs can be established either by amending an existing LLC, or starting a new one with PBLLC status in Delaware or another state that permits PBLLCs. Some states mandate PBCs use third party assessments when assessing progress; and others impose reporting requirements similar to those required of non-profit corporations.
What Are the Benefits of Forming a Public Benefit LLC?
Contrary to traditional corporations, Delaware public benefit corporations must balance stockholders’ financial interests with those materially affected by its conduct – instead of prioritizing maximization of stockholder value as with traditional entities.
PBCs must report to shareholders on how effectively the company is meeting its statutory goals, in a transparent and truthful manner. Companies seeking socially responsible practices but unwilling to commit to nonprofit structures like certified B Corporations were often forced to brand themselves as nonprofit organizations in order to attract like-minded donors and investors.
As such, they may have found it challenging to compete with companies offering greater returns. A Delaware public benefit LLC can be an attractive solution for businesses that wish to express their ethos while protecting personal assets from liabilities associated with their business. A simple way for a Delaware corporation to become a PBC may involve amending its certificate of incorporation – though domesticating as one or converting from another entity may also be considered.
How Can I Form a Public Benefit LLC?
Delaware is home to one of the highest concentrations of LLCs in the US, offering strong protection from creditors, pass-through taxation and flexible management. Forming as a public benefit LLC adds another level of corporate responsibility and may help attract customers looking for products or services with social impact.
To qualify as a public benefit corporation (PBC), the certificate of formation must state its intention to promote specific public interests or benefits. Furthermore, biennially report to stockholders on how well the PBC promoted those same public interests and best interests of those materially affected by its conduct.
Though any company can communicate its purpose through its operating agreement, choosing PBC status can help set it apart and give it an identity it wouldn’t have had if only operating under an LLC structure had been used. Furthermore, electing this status could give the business more credibility when seeking investors or marketing to potential customers.
