While most people are familiar with Corporations and LLCs, and some are familiar with the alphabet soup of other entity types (LLP, LLLC, LLLP, PLLC), the newest kid on the block is the Public Benefit Corporation (or PBC). This new entity is catching on fast in different states, and serves to fill a unique niche in the suite of entities.
Most entities (Corporations, LLC’s, etc) are managed by Directors (or managers) who are elected by the Shareholders (or ownership). These Shareholders entrust the Directors to act in their interests; in the past the courts have defined shareholder interest as profit maximizing – Director decisions should be purely financial decisions. If the Directors make decisions that are not in the financial interest of the ownership, the Directors may expose themselves to legal action by the ownership.
However, in the case of a PBC (and, more recently, the Public Benefit LLC), an entity can file as a PBC and explicitly state in their operating agreement some other corporate goal, outside of simply maximizing profit. This gives the Directors cover to make decisions that serve some “public benefit” as defined in the operating agreement, rather than only looking at profit maximization. Patagonia is an example of a corporation that sought the PBC structure. Patagonia long wanted support issues around social and environmental causes, but had difficulty balancing this mission with retaining a Corporate status. In January, 2012, Patagonia became the first company in California to file as a PBC.
Fast Facts about Public Benefit Corporation:
- Maryland was the first state to adopt the PBC Legislation in October, 2010. Within five years of this adoption, 31 other states passed legislation created PBC (each state with its own unique variation).
- On February 1, 2017, Laurate Education, Inc was the first Public Benefit Corporation to be public traded. Their stated public benefit is to “produce a positive effect for society and students by offering diverse education programs both online and from campuses around the globe.” Click for reference article from Fast Company.
- There is a distinction between a Public Benefit Corporation (PBC) and a B Corp. The PBC generally refers to a company organized under a states existing Public Benefit Corporation statutes. The B Corp is a certification conferred by a third party “B Labs” for a corporation that adheres to higher standards of serving the public good. A B Corp is not necessarily a PBC, and a PBC is not necessarily a B Corp. Likewise, click here for a discussion from B Labs on the differences.
Josh Twilley, President
This post is for informational purposes only. Should not be construed as legal or financial advice. Please consult with your attorney for legal advice or accountant for tax and financial advice.