Two recent changes to the Delaware Public Benefit Corporation Act bring good news to socially-minded entrepreneurs and business owners: It is now much easier to convert from a regular for-profit Delaware corporation to a Delaware public benefit corporation.
Delaware public benefit corporations
Many people have two goals when they start a business. They want the business to provide them with income. But they also want it to provide a benefit to society or the environment. These people are sometimes referred to as “social entrepreneurs”.
Most states offer social entrepreneurs the option of using a special kind of business entity generally known as a benefit corporation. Delaware – a significant incorporation state – has provided that option since August 2013, when the Delaware Public Benefit Corporation Act went into effect.
CT fact: There were 32 states that authorized benefit corporations, or a similar entity, as of September 1, 2015.
The Delaware Public Benefit Corporation Act defines a public benefit corporation (PBC) as a for-profit corporation “that is intended to produce a public benefit or benefits and to operate in a responsible and sustainable manner.” The directors are required to manage the PBC by balancing (1) the stockholders’ economic interests, (2) the best interests of those materially affected by the corporation’s conduct, and (3) the public benefit it is promoting.
Two recent changes make conversion easier
Many socially conscious business owners formed a Delaware for-profit corporation before the Public Benefit Corporation Act went into effect. But if they want to convert their for-profit into a PBC they can.
The Act provides that an existing Delaware for-profit corporation can become a PBC by amending its certificate of incorporation to state that it is a public benefit corporation and to specify one or more specific public benefits to be promoted.
Because of two changes to the Delaware Public Benefit Corporation Act that went into effect August 1, 2015, it is now easier for socially minded business owners to convert their Delaware for-profit corporations into Delaware public benefit corporations.
- Stockholder approval. As originally enacted, the statute required 90% of the stockholders of each class of stock to approve the change. However, getting 90% approval proved a very difficult task. As a result, the Delaware legislature amended the Act. Now, in order to convert to the PBC form, an existing for-profit corporation need only obtain the vote of two-thirds of all stockholders entitled to vote on the amendment.
- Corporate name. As originally enacted the Act also required the corporation to change its name to contain the words “Public Benefit Corporation” or the abbreviation “P.B.C.” or “PBC”. This proved expensive and inconvenient for existing for-profit corporations. It required them to file name change amendments in the states where they were qualified to do business. Some states were requiring them to file and do business under an assumed name. It also meant having to change business materials, trademark filings, contracts, business licenses, etc.
In order to remove that impediment, Delaware amended the Act to say that a PBC may, but is not required to, have the words “Public Benefit Corporation” or the abbreviation “P.B.C.” or “PBC” in its name.
For more information on Delaware public benefit corporations or on forming a benefit corporation in another state, see our benefit corporations service. For additional information on Delaware business entities, contact us or see our Delaware Registered Agent services. As always, if you have any further questions your CT Service team is ready to help.