Over the last several years, there has been a dramatic increase in entrepreneurs interested in using business to drive positive social change. While corporations retain substantial flexibility to pursue social and environmental goals under a legal concept called the “business judgment rule”, traditional corporate law generally holds that the purpose of a corporation is to maximize shareholder value. (For a discussion of traditional corporate forms, see our article Choosing the Correct Business Entity: The Basics). This is particularly true in an acquisition scenario: when a company is sold, directors have to maximize immediate return for shareholders and sell the company to the highest bidder.
Recently a new corporate entity has emerged to accommodate the interests of companies that seek to pursue both profit and purpose: the benefit corporation. The benefit corporation broadens the perspective of traditional corporate law by expanding concepts of purpose, governance, transparency and accountability with respect to a broad range of stakeholders, not just stockholders.
Traditional vs. Benefit Corporation
Although legislation does vary significantly across jurisdictions, the following table describes the main differences between traditional and benefit corporations.
While some version of the benefit corporation has been adopted in 30 states and the District of Columbia, the Delaware Public Benefit Corporation, or PBC, has quickly become the de facto standard. PBCs enjoy the traditional benefits of incorporating in Delaware, including the robust corporate law framework, as well as a carefully drafted benefit corporation statute. (For more information on incorporating in Delaware, see our article Where Should You Incorporate?) Since the law creating the PBC became effective in 2013, hundreds of companies have formed as or converted to PBCs, including well-known consumer companies like Kickstarter and Method Products.