Something happened in Delaware last week that is a big deal for corporate law across the country. On July 17, Delaware Governor Jack Markell signed legislation into law that enables public benefit corporations (PBCs) to be formed in the state.
A PBC can best be described as a socially conscious for-profit corporation that operates in the best interests of not only the stockholders, but those materially affected by the corporation’s conduct. Delaware is the 19th state to sign benefit corporation legislation into law. Introduced in March, the legislation, Senate Bill 47, passed the Delaware General Assembly without one opposition vote.
The law amends Title 8 of the Delaware Code relating to the general corporation of law. Although a PBC will be formed the way that any other corporation is formed under the Delaware General Corporation Law, its certificate of incorporation has to identify one or more specific public benefits and must have a name that identifies its status as a PBC. At least once every two years, a PBC must send stockholders a statement concerning the promotion of the public benefits identified in its charter, and how it is promoting the best interests of those materially affected by the corporation’s conduct. Corporations are eligible to either form, convert or merge into a PBC in Delaware starting August 1, 2013.
The law defines a PBC as “a for-profit entity which is managed not only for the pecuniary interests of its stockholders but also for the benefit of other persons, entities, communities or interests.” PBCs, according to the legislation, must be managed in a way that balances the stockholders’ interests, the interests of those affected by the corporation’s conduct, and a public benefit(s) identified in the corporation’s certificate of incorporation.
The new Delaware law will have a big impact in the area of corporate law. The state is home to over one million businesses, half of all publicly-traded companies and 64 percent of the Fortune 500. B Labs, a non-profit organization that certifies hundreds of companies as meeting rigorous standards of social and environmental performance, characterizes Delaware as the “most important state for businesses that seek access to venture capital, private equity, and public capital markets.”
B Lab calls July 17 a “historic day” because signing the legislation marked the “coming home of a capitalism that returns business to its proper role in society to create shared and durable prosperity.” Until recently, corporate law only recognized maximizing profits as a corporate purpose, but PBCs are a legal structure that are a “new and useful tool for everyone” that benefits business leaders, policy makers, investors and the public interest.
“Delaware’s enactment of benefit corporation legislation helps business return to its proper role in society to create shared and durable prosperity,” said Jay Coen Gilbert, co-founder of B Lab. “We’re deeply appreciative of Governor Markell’s leadership and the strong support of the Delaware General Assembly, the State Bar Association, the Court of Chancery, and the Secretary of State in creating a clear path to scale business as a force for good.”
Photo: Flickr user, Jack Markell