Key Takeaways

  • A public benefit corporation (PBC) is a for-profit entity that also pursues one or more public benefits.
  • As of September 1, 2021, Texas officially recognizes public benefit corporations under the Texas Business Organizations Code.
  • Texas PBCs must declare a specific public benefit in their certificate of formation and are held to transparency and reporting requirements.
  • PBC directors must balance financial interests with their stated public benefits and other stakeholders.
  • Annual benefit reports in Texas must describe actions taken to promote the benefit and be made available to shareholders.
  • PBC status can improve public trust, employee engagement, and access to like-minded investors.
  • An existing Texas for-profit corporation can become a public benefit corporation through an amendment approved by two-thirds of shareholders.
  • UpCounsel can help you connect with experienced Texas business attorneys to form or convert to a public benefit corporation.

What Is a Benefit Corporation?

A benefit corporation is a type of for-profit corporate entity. In addition to earning a profit, it takes society, workers, the community, and the environment into consideration before making business decisions. Originally implemented in Maryland in 2010, benefit corporations are considered a new type of business structure.

Filing the articles of incorporation will form a benefit corporation. Along with the typical fields found in the standard articles of incorporation, a benefit corporation will need to state that the formation of the business is reliant on providing a public benefit. A benefit corporation allows the organization's executives to balance stockholder profits with public benefits. Additionally, directors are responsible for making decisions that aren't geared towards larger profits.

A benefit corporation may have stockholders, easily raise capital, distribute profits, and seek profitable business goals while pursuing its social mission or public benefit. The directors in a benefit corporation must balance the interests of the following parties:

  • Stakeholders (employees).
  • Public.
  • Stockholders.

Currently, there are more than 40 states that have proposed or passed legislation acknowledging benefit corporations.

Forming a Benefit Corporation

The following states, including the District of Columbia, legally acknowledge some aberration of benefit corporations:

  • West Virginia.
  • Washington state - referred to as a "social benefit corporation."
  • Virginia.
  • Vermont.
  • Utah.
  • Tennessee.
  • South Carolina.
  • Rhode Island.
  • Pennsylvania.
  • Oregon.
  • New York.
  • New Jersey.
  • New Hampshire.
  • Nevada.
  • Nebraska.
  • Minnesota.
  • Massachusetts.
  • Maryland.
  • Louisiana.
  • Illinois.
  • Idaho.
  • Hawaii.
  • Florida.
  • Delaware.
  • Connecticut.
  • Colorado.
  • California.
  • Arkansas.
  • Arizona.

Benefit corporation legislation has been introduced in the following states:

  • Wisconsin.
  • Texas.
  • Ohio.
  • North Carolina.
  • New Mexico.
  • Montana.
  • Michigan.
  • Kentucky.
  • Kansas.
  • Iowa.
  • Indiana.
  • Georgia.
  • Alaska.
  • Alabama.

A registered agent must be appointed to all benefit corporations in the state of incorporation.

Texas-Specific Rules for Public Benefit Corporations

As of September 1, 2021, Texas law allows for the formation of public benefit corporations (PBCs) under Chapter 21 of the Texas Business Organizations Code. A Texas PBC is a for-profit entity that also identifies a specific public benefit it seeks to promote.

To form a public benefit corporation in Texas, the certificate of formation must:

  • Clearly state that the entity is a public benefit corporation.
  • Include one or more specific public benefits the corporation will promote.
  • Comply with all other requirements under the Texas Business Organizations Code.

Existing for-profit corporations in Texas can convert to PBC status by filing a certificate of amendment and securing approval from at least two-thirds of shareholders. Entities must also maintain a registered agent in Texas, as with all business corporations in the state​.

What Are the Responsibilities of Directors in a Benefit Corporation?

The director's responsibility is to question how a decision will impact not only profit, but also the environment and society. Companies don't need to be certified by B Lab in order to be considered a benefit corporation.

Balancing Profit and Purpose in Texas PBCs

In a Texas public benefit corporation, directors must manage the corporation in a manner that balances:

  • The financial interests of shareholders,
  • The best interests of those materially affected by the corporation’s conduct, and
  • The specific public benefit(s) identified in the certificate of formation.

This structure empowers directors to consider environmental, social, and community impacts without breaching fiduciary duties. It also offers some protection from shareholder claims focused solely on maximizing profits, as long as the public benefit is earnestly pursued.

However, Texas law does not mandate directors to give priority to any particular interest unless specified in the certificate of formation or bylaws​.

Public Purpose

The Model Legislation dictates that a benefit corporation is required to have the purpose of "creating a general public benefit." This is defined as "A material positive influence on the environment and society, as a whole, appraised against a third-party guideline, from the organization and operations of a benefit corporation." Additionally, many state statutes and the Model Legislation acknowledge the following public benefits:

  • Improving human health.
  • Increasing the flow of capital to entities with a public benefit purpose.
  • Promoting economic opportunity for communities or individuals beyond the creation of jobs in the ordinary course of business.
  • Promoting the advancement of knowledge, the arts, and sciences.
  • Providing underserved individuals or low-income communities with beneficial services or products.
  • Restoring, protecting, and preserving the environment.
  • The accomplishment of any other particular benefit for society or the environment.

In Delaware and Colorado, the pursuit of one or more than one specific benefit is required.

Compliance and Reporting for Texas Public Benefit Corporations

Public benefit corporations in Texas are required to maintain transparency and accountability regarding their public purpose.

Key compliance requirements include:

  • Annual Benefit Report: Texas PBCs must prepare an annual report detailing how they promoted the public benefit stated in their certificate of formation. The report must be delivered to shareholders.
  • No Third-Party Standard Required: Unlike some states, Texas does not require PBCs to use an independent third-party standard to assess performance, but the report must still include measurable results.
  • No Mandatory Public Disclosure: While some states require public disclosure of benefit reports, Texas does not. However, making it available publicly is considered a best practice for transparency.

Failure to properly report or pursue the declared benefit may expose directors to lawsuits from shareholders, although Texas law limits the circumstances under which such actions can be taken​.

Can a Benefit Corporation Be an S Corporation?

Yes, a benefit corporation can elect to be taxed as an S corporation. This is because the designation of a benefit corporation is made at the state level, while S corporation status is a federal tax election under IRS rules. If a benefit corporation meets all the requirements for S corporation status—such as having no more than 100 shareholders and only one class of stock—it can file IRS Form 2553 to be taxed as an S corporation. This allows the entity to combine the social mission of a benefit corporation with the tax advantages of pass-through income.

Converting a Traditional Corporation to a Benefit Corporation

A traditional corporation can convert into a benefit corporation by following specific steps. First, the business must be incorporated in a state that recognizes benefit corporations. Next, the corporation must obtain approval from a supermajority of shareholders—typically two-thirds—before proceeding. Finally, the business must file amended or restated articles of incorporation. These revised articles should include the new entity designation, a clear public benefit purpose, and a statement confirming the corporation’s intent to operate as a benefit corporation. This transition ensures legal recognition of the company’s commitment to both profit and purpose.

Compliance Requirements for Benefit Corporations

Benefit corporations are subject to unique compliance obligations that distinguish them from traditional corporations. Under the Model Benefit Corporation Legislation, directors are required to consider a broad range of factors when making decisions—not just shareholder interests. This includes the effects on employees, customers, communities, and the environment. Directors must also weigh both short-term and long-term outcomes, as well as the corporation’s ability to pursue its general public benefit purpose. Most states also mandate that benefit corporations produce an annual benefit report. This report, which assesses the company's progress toward its public benefit objectives, is typically made publicly available to enhance transparency and accountability.

Why Choose a Public Benefit Corporation in Texas?

Texas entrepreneurs and investors may choose the PBC model for several strategic reasons:

  • Mission Protection: Ensures that a company’s public purpose is legally protected, even through leadership changes or ownership transitions.
  • Consumer Trust: Increases brand loyalty and reputation, particularly among socially conscious consumers.
  • Investor Appeal: Attracts mission-aligned capital from impact investors and ESG-focused funds.
  • Employee Engagement: Boosts morale and retention by aligning work with purpose-driven values.

While a PBC must still generate profit, it does not have to maximize shareholder value at the expense of broader societal or environmental concerns.

If you're considering forming a public benefit corporation in Texas, you can post your legal need on UpCounsel to connect with qualified business attorneys who can guide you through the process.

Frequently Asked Questions

1. What is a public benefit corporation in Texas? A public benefit corporation in Texas is a for-profit corporation that is legally required to pursue one or more public benefits alongside profit.

2. How do I start a public benefit corporation in Texas? File a certificate of formation with the Texas Secretary of State stating your intent to be a public benefit corporation and listing your specific public benefit(s).

3. Do Texas PBCs have to publish benefit reports publicly? No, Texas law requires benefit reports to be delivered to shareholders but does not require public disclosure.

4. Can an existing Texas corporation convert to a PBC? Yes. A for-profit corporation in Texas can convert to a PBC with a two-thirds shareholder vote and an amended certificate of formation.

5. Are Texas PBCs the same as B Corps? No. “B Corp” refers to a certification by B Lab, while a public benefit corporation is a legal business entity type under state law.

If you need help with B corporation states, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.