Legislation is introduced to create Public Benefit Corporations under the Delaware General Corporation Law

Way to go Senator Sokloa!

Entrepreneurs and investors who are interested in doing business through a corporate entity that may sacrifice some profit in order to benefit other interests such as communities, employees and the environment may soon be able to pursue such activities through a Delaware corporation.

Senate Bill # 47 was introduced yesterday and assigned to Small Business Committee in Senate. If passed, Delaware would become the 13th Sate to have provisions to allow for this type of business entity.

So what is a Public Benefit Corporation?

A public benefit corporation is a for-profit corporation that is managed for the benefit not only of its stockholders but also other persons, entities, communities or interests.

The definition of public benefit is very broad and includes effects on persons, entities, communities or interests, including effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.

Most importantly, the directors of a public benefit corporation are required to consider the interests of the materially affected parties. In addition, the charter of the corporation must establish one or more specific public benefits that must be considered by the board.

There are reporting requirements to safeguard the integrity of the PBC; a shareholder statement must be issued at least once every two years with respect to its promotion of the public benefit or benefits identified in its charter, as well as the best interests of those materially affected by the corporation’s conduct.

How does Delaware’s statute differ from the provisions adopted in other states?

Well, there are a number of significant differences. For example, the Delaware statute requires the inclusion of at least one identified specific purpose, which is not required by benefit corporation legislation in other states. On the other hand, the Delaware legislation does not specifically require that a third-party standard be used for reporting purposes. Importantly, however, the legislation does specifically authorize charter provisions that do provide for reporting as (or more) rigorous than that provided for in other states’ provisions.

By using a Delaware corporation, entrepreneurs and investors who wish to pursue these goals will be able to rely on the long tradition of Delaware corporate law, as well as the Division of Corporations and the Delaware judiciary, to provide a measure of stability and predictability in an area of law that may evolve rapidly.

This is certainly one to watch folks.

• ← Nominate the New Castle County Chamber of Commerce 2013 Entrepreneur of the Year
• The Delaware Business Weekly Round Up – April 19th, 2013 →