Should Your Startup Become a Public Benefit Corporation?

28 July 2015 Innovative Technology Insights Blog

With the increased attention paid to companies that feature public benefits or social impact as part of their mission or business plan and with the rise of social impact investors, more and more states are enacting public benefit corporation statutes (five will go effective this year). Delaware revised its statute to include the public benefit corporation in 2013.

Public benefit corporations are similar to traditional corporations, but they allow for an expanded corporate purpose where the corporation (and its directors) may balance financial and non-financial interests when making decisions. Specifically, the public benefit corporations are not required to maximize stockholder value and can also consider their non-financial public benefit purpose when making decisions, even in the context of a sale transaction. Traditionally, corporations and boards of directors were required to take actions in the financial best interest of their stockholders almost exclusively, especially in the context of a sale transaction.

With the increased ability to consider non-financial interests when making decisions, public benefit corporation do face additional accountability for their public benefit purpose. Specifically, stockholders of a public benefit corporation are given additional rights to enforce the public benefit duties of the corporation though derivative suits. Also, public benefit corporations are required to make biennial reports to its stockholders to report on the corporation’s overall public benefit impact.

To become a public benefit corporation existing corporations must amend their charter and/or bylaws to include the new purpose, change their name (to one including the public benefit designation) and provide for other related provisions required by statute. At least two-thirds of the corporation’s outstanding stock must approve the transition to a public benefit corporation. New corporations can incorporate with the required provisions already included. A corporation can reverse course and go back to being a more traditional corporation with a two-third stockholder vote and amendment the charter and bylaw.

Make sure your company fully understands the public benefit corporation statutes if social impact is part of your startup business plan.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services