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Recently, a new type of business classification has materialized and has gained popularity with social- and environmentally-conscious businesses. A public benefit corporation is a Delaware-chartered entity that is required to 'operate in a responsible and sustainable manner', has a declared one or more specific public benefit purposes and is required to 'balance financial interests of shareholders with… the best interests of those materially affected by the corporation's conduct and the identified specific benefit purpose'. These benefits place emphasis on a triple bottom line that offers a material positive impact from a financial, environmental, and social standpoint.

At present, public benefit corporations can be formed in Delaware. Similar entities with slight differences in requirements and names can be formed in 21 other states and the District of Columbia. Laws allowing for the formation of benefit corporations will go into effect in 5 other states in 2014.

Requirements for Public Benefit Corporations

To qualify as such, public benefit corporations must include one or more specific public benefit purposes in their articles of incorporation. The specific public benefit purpose defines a public benefit corporation's mission, and could focus on, 'but is not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature'.

Public benefit corporations are required to report to shareholders every two years on the PBC's impact on the interests of those materially affected by the corporation's conduct and its named specific public benefit purpose.

Public benefit corporations must also operate in a responsible and sustainable manner and 'balance the pecuniary interests of stockholders and the best interests of those materially affected by the corporation's conduct…'

How is a Public Benefit Corporation Structured?

Private sector corporations can elect to become a public benefit corporation without having to relinquish either c corp or s corp status. Public benefit corporations typically appoint a board of directors.

What Are the Benefits of Creating a Public Benefit Corporation?

While there are no explicit tax benefits that stem from designating a company as a PBC, a public benefit corporation can still incorporate as either a c corp or s corp and it does not impact the company's tax status. So long as a public benefit corporation adheres to the requirements of transparency, accountability, and its defined specific public benefit purpose, there is no difference in the way a PBC is taxed compared to other corporate entities.

In addition to creating a new type of business entity that benefits the general public as well as its shareholders, a public benefit corporation can grant its officers legal protection. The original goal of the PBC may also be protected under new ownership. Should a business owner decide to sell the corporation, the PBC's directors may have the freedom to choose the buyer based on the corporation's charter-defined social and environmental mission rather than making that decision based on the highest value for investors.

This sort of business structure lends itself to giving shareholders more rights and more say in furthering or expanding the PBC's designated mission by requiring a 90% majority vote of shareholders.

For more information or if you would like to create a public benefit corporation, call incorporate.com at 1-800-818-6082

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