ARTICLE
28 July 2015

Should Your Startup Become A Public Benefit Corporation?

FL
Foley & Lardner

Contributor

Foley & Lardner LLP looks beyond the law to focus on the constantly evolving demands facing our clients and their industries. With over 1,100 lawyers in 24 offices across the United States, Mexico, Europe and Asia, Foley approaches client service by first understanding our clients’ priorities, objectives and challenges. We work hard to understand our clients’ issues and forge long-term relationships with them to help achieve successful outcomes and solve their legal issues through practical business advice and cutting-edge legal insight. Our clients view us as trusted business advisors because we understand that great legal service is only valuable if it is relevant, practical and beneficial to their businesses.
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.
United States Corporate/Commercial Law

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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