Four years after Delaware first enacted its Public Benefit Corporation (PBC) statute, the state has taken another step forward in advancing legal entity forms for social enterprises. In August, Delaware added a new legal entity to its code: the Public Benefit Limited Liability Company, or PBLLC.
As its name suggests, the PBLLC legislation closely tracks the PBC legislation, so its material features will be familiar to most social entrepreneurs and impact investors. In essence, a PBLLC must include in its certificate of formation a statement setting forth one or more specific public benefits that it must promote (which cannot be altered without the approval of the holders of at least two-thirds of the percentage or other interest in the PBLLC’s profits). In addition, the members or managers must manage the affairs of the PBLLC in a manner that balances (in a reasonable, informed and impartial way):
- (i) the pecuniary interests of the members;
- (ii) the best interests of those materially affected by the PBLLC’s conduct; and
- (iii) the specific public benefit(s) set forth in the PBLLC’s certificate of formation.
While the impact community has broadly viewed the PBC form as an important tool to enable the pursuit of social/environmental missions within the corporate construct, the same may not be true for the PBLLC, given the contractual flexibility already embedded within existing LLC forms in many states. But it’s important to note that not all states allow for Delaware-type flexibility to contract around fiduciary duties; recent changes to the California LLC statute in 2014 imposed traditional fiduciary duties on California LLCs.
Apart from the legal aspects of the PBLLC, the new form may offer certain practical benefits to the extent the statutory designation simplifies any diligence and review processes from an impact perspective investors, evaluators, and the public will understand that a PBLLC must operate in accordance with a baseline level of impact requirements without having to parse an operating agreement. In addition, as has occurred with the PBC, the PBLLC may become an important symbolic marker for those social entrepreneurs committed to achieving impact goals and attracting impact-first investors.