Public Benefit Corporation: Everything You Need to Know
A public benefit corporation is a brand-new legal tool to create a strong basis for long-term mission alignment and value creation.3 min read
Updated July 13, 2020:
What is a Public Benefit Corporation?
A public benefit corporation is a corporation created specifically to benefit the public in some way. The focus is on both profit and mission alignment. A benefit corporation preserves a company's mission in the following ways:
- Introduces capital increases and management modifications
- Creates extra options when making choices about liquidation or selling
- Prepares companies to focus on their mission after going public
Benefit corporations not only have the goal of profit maximization, but they also work to benefit the public in both general and specific ways. Benefit corporations must consider how their selections affect both shareholders and stakeholders.
Benefit Corporation Businesses
Many types of companies have grown to be benefit corporations after Maryland passed the first legislation allowing this type of business to be formed in 2010. Benefit corporations presently operating in America come from various industries, including the following:
- Food and beverage manufacturing
Benefit corporations are available in many sizes, from worldwide brands to small businesses. Some famous benefit corporations are:
- Plum Organics
Are Benefit Corporations Hybrid Nonprofits?
Benefit corporations are neither nonprofits nor hybrid nonprofits. Benefit corporations are for-profit corporations that need to consider stakeholders, morals, or missions in addition to making a profit for their shareholders. Nonprofits can't be benefit corporations, but they may create one. Due to the public benefit purpose provisions, expanded fiduciary duties of administrators, and extra shareholder rights created within the model benefit corporation laws, this structure may be helpful to operate and scale the earned-income activities of a nonprofit.
Does Being a Benefit Corporation Affect a Company’s Ability to Raise Capital?
Benefit corporations are transferring into public and international markets. In December, Italy passed benefit corporation laws, making it the second country, after the U.S., to pass this type of legislation. B Lab stated that it's founding a Multinationals and Public Markets Advisory Council (MPMAC) to handle a variety of obstacles that are making it difficult for multinational publicly listed and personal companies to be considered a benefit corporation with B Corp Certification.
Unilever and Danone will soon become members of the MPMAC together with the following companies:
- Campbell Soup
- Grant Thornton
- Era Funding Administration
Options When Selling
Changing into a benefit corporation provides companies with more sale options since they can:
- Encourage competitors based mostly on dedication to mission along with value
- Contemplate elements other than value when choosing if they want to sell and who they would sell to
- Relinquish or retain benefit corporation standing before or after selling, relying on the present and new proprietors’ preferences and sometimes a two-thirds vote by shareholders
Is Going Public an Option?
Benefit corporations can go public. The benefit corporation category was implemented as a way to protect company missions when going public. No public benefit corporations currently exist. A public company named Natura was traded on the Sao Paulo Stock Exchange and reworked its articles to incorporate stakeholder commitments, much like the commitments discovered within the benefit corporation statute. Natura's institutional shareholders, together with Lazard, T. Rowe, and Oppenheimer, signed off on this official change.
How Are the Financial Interests of Shareholders Protected?
All of the protections normally in a corporate model are available. Shareholders first have all normal company governance rights. Things like voting on company transactions like mergers or amendments and electing directors fall to them. Any transactions that result in conflict must go through a fairness evaluation any time there is a challenge. This ensures that administrators can't focus on their individual interests over the shareholders’ interests.
Is There Risk of Lawsuits by Third Parties?
Third parties would not be authorized to sue a benefit corporation until granted by the shareholders.
Does Benefit Corporation Legislation Cost the State?
Benefit corporation laws don't cost the state. Such an entity is administered like any other company type, it's merely another company choice, and thus, there is no cost to the state. Nonetheless, some states have evaluated this type as an income generator as a result of the potential for the business development of their state.
If you need help with your public benefit corporation, 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.