public benefit corporation

Public benefit corporations: What they are and why you should care

There’s a rising tide of businesses in the U.S. that have elected to become public benefit corporations (PBCs). In fact, there are about 5,400 as of last year. But what does that designation mean, and why are so many companies choosing to differentiate themselves in this way? Here’s what you need to know about PBCs and why you should care.

What is a public benefit corporation?

Unlike C- and S-corporations, which are legally required to base business decisions on how to maximize profits, public benefit corporations have an additional mandate. They must go beyond thinking solely about profit and commit to incorporating values such as purpose, accountability and transparency into their business model. To put it simply, PBCs are for-profit companies that are committed to considering the impact of their decisions on society, not only on shareholders.

What’s more, directors and officers in the company are legally protected when they consider both financial and nonfinancial interests. That means that if, for example, a public benefit corporation wants to sell the company, the board can consider not just the price but other factors that affect its social purpose, like how the buying company treats its employees or how their business practices impact consumers or the environment.

Disclosure: Resolve recently reincorporated as a public benefit corporation. You can read the announcement here.

The rise of the benefit corporation

In 2010, Maryland Governor Martin O’Malley signed into law the new corporate structure called the benefit corporation. You can read the Senate Bill 690 here, but generally speaking, the new legal designation for benefit corporations protects them as they make “a material, positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of specific public benefits.”

Since the law was enacted, benefit corporation legislation has passed in 36 states, with five other states currently working on it. You can see the status of your state here. And it doesn’t matter what industry the company is in or the size: Companies in retail, manufacturing, tech, service, professional services, private education, and food and beverage production have become benefit corporations, and they range from small startups to huge international brands. Some examples include Method, Kickstarter, Plum Organics, King Arthur Flour, Athleta, Kleen Kanteen, Etsy and Patagonia.

Is a public benefit corporation the same as B-Corp?

While public benefit corporations and B-Corporations are often confused — the “B” in “B-Corp” also stands for “benefit” — there are some differences.

For example, while they both are required to demonstrate accountability and transparency for all stakeholders (meaning employees, customers and shareholders), B-Corps are certified by the nonprofit B-Lab after passing the B Impact Assessment, which measures how a company’s operations and business model impacts its workers, community, environment and customers.

And while PBCs can self-report on their performance, B-Corps must also be recertified every three years and pay annual fees anywhere from $500 to $50,000 based on their revenue. PBCs, on the other hand, must pay an initial filing fee that ranges from $70 to $200, depending on the state in which they are incorporated.

Why you should care

There are many reasons why becoming a PBC — or choosing to do business with a PBC — in the current economy is in your best interest, but two reasons stand out immediately:

First, it makes good business sense when attracting and retaining both employees and customers, especially along generational lines. For example, millennials are now the biggest generation in the U.S. workforce. And a whopping 74% of them say they would leave an employer that didn’t prioritize making a positive impact on society.

And according to Deloitte’s 2019 Global Millennial Survey, millennials are skeptical of businesses that focus only on profits rather than considering the impact on society. What’s more, the survey found, “Millennials and Gen Zs, in general, will patronize and support companies that align with their values. Younger generations are putting their money where their mouths are when it comes to supporting businesses that make a positive impact on society.”

Second, benefit corporations are often more attractive to investors (both venture capital investors and institutional investors) due to the PBC’s commitment to accountability and transparency. According to B Lab, “The investor community has led the charge by supporting benefit corporation entrepreneurs. More and more, we’re seeing entrepreneurs choose to become benefit corporations and proceeding to do large-scale successful capital raises from traditional investors.”

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