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Introduction
A corporation is a creature of state law. It is governed first and foremost by laws of the place in which it is incorporated and/or principally operates, and additionally by the standards to greater or lesser degrees of the places in which it conducts business. Of course, from Alabama to California, we are a diverse country of diverse sets of rules and regulations. Rising above the diversity, however, is the universal principle of shareholder primacy; that is, corporate directors are elected by corporate shareholders, and the directors in their management of the corporation must above all else provide a financial return to shareholders.
An unfortunate byproduct of shareholder primacy is that it limits the ability of corporate management to at times esteem its employees and environmental footprints, or to measure the social consequences of its practices, if such estimation or measurement endangers stockholder return. This is admittedly an oversimplification, but not an egregious one. Time and time again, corporations have been prevented from, say, paying employees higher wages at the expense of issuing dividends, by lawsuits initiated by shareholders against corporate directors, aka shareholder suits.
The rise of the benefit corporation is in direct response to shareholder primacy. Under benefit corporation statutes, corporations that operate according to ‘doing well by doing good’ ethos are shielded from a range of acquisition tactics and shareholder suits when compliant with the respective statutes. Moreover, data is showing that benefit corporations tend to attract better talent and scale better than their non-benefit peers. They may even find tax advantages not otherwise available.
Delaware
As Delaware goes, so goes the nation. Not actually. But as Delaware corporate law goes, so goes U.S. corporate law. You can think of Delaware as the Rudy of the Union, in a sense. It’s undersized, underpopulated (well, it is sort of densely populated), but the preeminent forum for business standardization. There’s a long history to this, but let’s just sum it up as Delaware has done a knockout job establishing itself as a corporate haven, for better or worse. (In some places, there are more chickens than people; in Delaware, there are more registered corporations than people.) Consequently, in many cases you will see Delaware’s corporate statutes adopted entirely by other states. Appropriately, our Mid-Atlantic tour starts with Delaware.
Delaware – The Nuts and Bolts
How to PBC if your business is already up and running: To become a Public Benefit Corporation (PBC) in Delaware, an existing entity generally must amend its Articles of Incorporation with the approval of 2/3 of the outstanding stock of the corporation. An exception to the rule is available to early stage companies that have not yet received payment for capital stock. Merging or consolidating with or into another entity also requires reaching the 2/3 threshold under § 363(b)(2).
How to PBC if your business is a NewCo: To become a PBC, a newly formed company (NewCo) must file its Articles of Incorporation including: (1) a statement of one or more Specific Public Benefits within the NewCo’s purpose; and, (2) a statement in its heading that it is a public benefit corporation.
Once you’ve pushed the paper: Once the certificate of incorporation is successfully amended/initially filed, a specified Benefit Director of the entity must prepare a report (at least) biennially for its stockholders or directors that details the company’s progress and activities in pursuit of the stated public benefit(s). Delaware’s statute does not require verification by a third party (such as B Lab) or public access to the benefit report. Companies can still decide to report annually instead of biennially, be verified by a third party, or elect to make the report publicly available under its own bylaws— but they are not required to by the Delaware Code. As the Epicenter of Corporate Law, the Delaware Business Codes are often used as models for other state legislation. Delaware’s adoption of a PBC statute is a significant milestone in the ongoing movement towards responsible enterprise, even if the legislation omits ideal enhancements found within other model legislation.
Maryland
Maryland was actually the first state to adopt Public Benefit Corporation (PBC) legislation. Being the first, the statute follows the model legislation created by B Lab, the nonprofit that endorses companies as Certified B Corps.
Maryland’s statutes differ from Delaware in a few noteworthy ways: (1) public benefit is defined as a material and positive impact on both environment and society; (2) specific means of accomplishing a public benefit include action-oriented and quantifiable activities such as “increasing the flow of capital to entities with a public benefit purpose”; and, (3) actualization of public benefit is guided by an independent third-party assessor. Unlike a few other states, like New Jersey and Virginia, there is no Benefit Enforcement Proceeding here. In Delaware, a PBC need only “intend” to produce a public benefit, which may be defined as broadly as promoting a positive effect on a religious interest. In Maryland, a more global public benefit must be advanced in the balancing of interests.
Maryland – The Nuts and Bolts
A NewCo PBC in Maryland must expressly state the fact in its charter and bylaws (Articles), and all stock certificates. It must further state its intent to be organized or a public benefit, as defined, and highlight any particular specific benefits, i.e. objectives that when acted upon comprise a public benefit. The entity’s progress in pursuit of the stated benefit(s) and business activity is disclosed to shareholders and the public through an annual benefit report. The report is to be posted on the company’s website (if there is one) and should be provided to anyone who requests it free of charge (if there isn’t a website). For transparency, a third-party evaluator’s report must also be publicly accessible.
New Jersey
New Jersey hopped on the wagon in 2011 after the illustrious governor Chris Christie signed it’s benefit corporation bill into law.
An entity can file/amend its Articles of Organization with the New Jersey Department of the Treasury (Division of Revenue & Enterprise) to become a Benefit Corporation by (1) including a statement that distinguishes it as a Benefit Corporation and (2) by stating a General Public Benefit (with other specific benefits if desired) that it agrees to pursue. A Benefit Director must also be specifically designated and elected to prepare the annual benefit report that details the entity’s progress in pursuing its stated goal(s) in accordance with a third-party standard. The report is presented to all stockholders on an annual basis. The most recent report must also be made publicly available through the company’s website (if there is one) or be available free of charge by request (if there isn’t one). Proprietary or financial information may be omitted from the public version of the report.
The New Jersey statute added a unique clause that outlines a “forfeiture of benefit corporation status” if the company fails to submit a benefit report for a period of two years. If the company subsequently submits a benefit report, they are reinstated as a benefit corporation and subject to the New Jersey Benefit Corp Code again. Shareholders can also vote to terminate benefit corporation status.
New Jersey – The Nuts and Bolts
How to PBC if your business is already up and running: To become a Public Benefit Corporation (PBC) in New Jersey, an existing entity generally must amend its Articles of Incorporation to state that it is a benefit corporation, and the amendment must be adopted by at least a minimum status vote. A minimum status vote requires approval by at least 2/3 of shareholders.
How to PBC if your business is a NewCo: To become a PBC, a newly formed company (NewCo) must file its Articles including: (1) a statement of one or more Specific Public Benefits within the NewCo’s purpose; and, (2) a statement that it is a public benefit corporation.
Once you’ve pushed the paper: Once the Articles of Incorporation are successfully amended/initially filed, an elected Benefit Director must prepare a report an annual for its shareholders or directors that details the company’s progress and activities in pursuit of the stated public benefit(s). The statute lists in details what must be included in the report, such as an assessment of the social and environmental performance of the corporation prepared in accordance with a third-party standard, the names and contact addresses for the company’s Benefit Directors and officers, the compensation paid to each Benefit Director and officer, and the names of each person owning more than 5 percent of outstanding shares in the corporation.
New Jersey’s statute does not require verification by a third party (such as B Lab), but does require that the report by published on its public website and delivered to the Department of Treasury for filing. New Jersey benefit corporations may also designate a “benefit officer” with the authority to manage for the purpose of achieving public or specific benefits. The duties of the benefit officers and directors can be enforced in a Benefit Enforcement Proceeding, but can only be brought by the corporation itself or derivatively, by a shareholder for example.
New York
In New York, an entity can file/amend its Articles of Incorporation to become a Public Benefit Corporation (PBC) by including a statement that distinguishes it as a PBC. An existing corporation that wants to become a benefit corporation must have the approval of its shareholders by a minimum status vote. The certificate of incorporation can (but does not have to) detail the Specific Public Benefit(s) that the company wishes to pursue. A PBC must produce a benefit report annually for its shareholders that details its progress in pursuing its stated public benefit (and specific benefits if applicable). For example, it must contain a narrative description of any circumstances that hindered the creation of a general or specific public benefit, as well as information about the compensation paid to directors and the names of each person owning more than 5 percent or more of outstanding shares in the corporation. This report must be generated using a third-party standard. In addition to shareholders, the entity must make the report publicly available through its website (if there is one) or available on request (if there isn’t one). Any financial or proprietary information included in the benefit report may be omitted from the publicly posted versions. A separate copy must also be filed with the New York Department of State, Division of Corporations.
Benefit corporations can choose to terminate their status as a benefit corporation by amending their certificate of incorporation to delete identification as a benefit corporation. The termination must be approved by a minimum number of shareholders as defined by New York law. New York law also permits a shareholders or directors to bring a Benefit Enforcement Proceeding. There are other more detailed stipulations in the New York Business Code, but as always, we recommend consulting an attorney before making such a substantive business decision.
Pennsylvania
In Pennsylvania, an existing or new company can become a Public Benefit Corporation (PBC) by amending/filing its Articles of Incorporation with the Bureau of Corporations and Charitable Organizations to include a statement of its status as a benefit corporation. Similar to Delaware, an existing entity must have approval of 2/3 of its shareholders to make the switch.
The newly formed benefit corporation will need to prepare a benefit report each year describing its efforts to create public benefit during the preceding year. This report, which should include an assessment of the overall social and environmental performance of the benefit corporation, will be given to shareholders and made available to the public through the company’s website. Financial or proprietary information may be omitted from the public version of the report, but, overall, it must be prepared in accordance with a credible third-party standard. Read the more in-depth stipulations of the Pennsylvania Code and consult an attorney before making the switch.
Virginia
In Virginia, an existing or new company can become a Public Benefit Corporation (PBC) by amending/ filing its Articles of Incorporation with the State Corporation Commission to include (1) a statement of its status as a benefit corporation and (2) a corporate purpose to create General Public Benefit (with optional specific benefits). The decision to amend articles of incorporation requires a 2⁄3 vote by the board of directors and shareholders.
The newly formed benefit corporation will need to prepare a benefit report each year describing its efforts to create public benefit during the preceding year. This report, which should include an assessment of the overall social and environmental performance of the benefit corporation, will be given to shareholders and made available to the public through the company’s website. Financial or proprietary information may be omitted from the public version of the report, but, overall, it must be prepared in accordance with a credible third-party standard. The Virginia Code further details the requirements of becoming a Virginia benefit corporation.
Washington D.C.
To become a Public Benefit Corporation (PBC) in Washington D.C, a new or existing entity must specify its status as a PBC in its Articles of Incorporation. The entity must also express its purpose of creating General Public Benefit (with the option of identifying one or more Specific Public Benefits). The entity’s board of directors should include a specified Benefit Director who is to prepare an annual benefit report to be presented to shareholders. In addition to detailing the company’s pursuits of its stated purpose, the benefit report must be prepared in accordance with a credible third-party standard. The report must be posted on a public portion of the company’s website (and made readily available upon request if they don’t have a website). Also, a copy must be delivered to the Mayor when filing the biennial report required of all corporations under § 29-102.11. The compensation paid to directors and financial or proprietary information included in the benefit report may be omitted from the copy of the benefit report that is delivered to the public and the Mayor. Reference the Code of the District of Columbia for more in-depth details of becoming a D.C. benefit corporation.
West Virginia
In order to become a West Virginia Public Benefit Corporation, new or existing entities must file Articles of Incorporation with the Secretary of State that specify its status as a benefit corporation. The entity shall have as one of its purposes the purpose of creating a General Public Benefit (with optional Specific Public Benefits). The entity must also prepare an annual benefit report that details the company’s progress in pursuit of its purpose(s).
The benefit report must be prepared in accordance with a third-party standard (specified in the articles of incorporation, the bylaws, or otherwise adopted by the board of directors). The report should be made available to each shareholder. Additionally, the benefit corporation should post its most recent benefit report on a publicly accessible portion of its Internet website (if it has one); the report needs to be readily available to those who request it if there is no public website. A benefit corporation is not required to publicly disclose to persons other than its shareholders any proprietary, confidential, or individual compensation information contained in its benefit report. The West Virginia Code further details the requirements of becoming a Virginia benefit corporation.
West Virginia – The Nuts and Bolts
How to PBC if your business is already up and running: To become a Benefit Corporation in West Virginia, an existing entity must amend its Articles to state that it is a benefit corporation.
How to PBC if your business is a NewCo: To become a PBC, a newly formed company (NewCo) must file its Articles with the Secretary of State stating it is a benefit corporation.
Once you’ve pushed the paper: Once the certificate of incorporation is successfully amended/initially filed, an elected Benefit Director must prepare a report an annual for its shareholders or directors that details the company’s progress and activities in pursuit of the stated public benefit(s). The statute lists in details what must be included in the report, such as an assessment of the social and environmental performance of the corporation prepared in accordance with a third-party standard, and an explanation of any circumstances that have hindered the corporation in creating a benefit. The report must be made available to the public on the corporation’s website. A Virginia benefit corporation may terminate its status as a benefit corporation by amending its Articles to delete the statement stating it is a benefit corporation.
Find this information and more on our official guide: RVL Mid-Atlantic B Guide
Please note that this guide is for informational and advertisement purposes only. The use of this guide does not constitute an attorney-client relationship. As laws frequently change and may be interpreted differently, RVL® does not in any way guarantee the accuracy or applicability of this information.
