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Editorial 9 MIN READ

The benefit corporation goes public: two S-1s in eight days

Warby Parker and Allbirds filed as Delaware PBCs inside a week, and the amended statute is already doing the work

The Editors
Staff, Incorporator.org
9 min read Updated
Contents 8 sections
  1. What has changed in the statute
  2. The 2021 cohort, in order
  3. What the cover pages actually disclose
  4. The conversion question
  5. The certification question, again
  6. What this cohort probably does not settle
  7. The operating takeaway for September 2021
  8. Sources

arby Parker filed its S-1 on August 24 as a Delaware public benefit corporation. Allbirds filed its S-1 on August 31 as a Delaware public benefit corporation. Eight days, two registration statements, the same entity form on the cover page.

Twenty months ago we ran a decade check on the benefit corporation and said the form was finally getting out of its own way. The 2021 IPO calendar has since turned that into something closer to a market fact.

What has changed in the statute

The operative text is 8 Del. C. §§ 361 through 368, the subchapter that authorizes the public benefit corporation. Delaware amended this subchapter through House Bill 341, signed into law on July 16, 2020 and effective the same day. Three changes matter for a company considering an IPO.

The first is the merger vote. The old section 363 required a supermajority of two-thirds of the outstanding stock for a conventional corporation to convert into a PBC, and for a PBC to convert back or to merge into a non-PBC. HB 341 struck the supermajority and replaced it with the ordinary majority that governs any other amendment or merger under the DGCL. A board that wants to flip the charter now needs the same vote it would need to change a classified-board provision, not more.

The second is appraisal. The pre-2020 statute gave dissenting stockholders appraisal rights when a corporation converted into a PBC. Those rights are gone. If the board and a majority approve the conversion, a holder who dislikes the new charter can sell, not sue for fair value.

The third is the fiduciary safe harbor. Section 365(b) already required PBC directors to balance stockholder pecuniary interests, the interests of those materially affected by the corporation's conduct, and the specific public benefits in the charter. HB 341 clarified that a director's balancing decision satisfies the duty of loyalty so long as it is not a conflicted transaction, and that a stockholder derivative suit challenging a balancing decision requires a plaintiff owning at least 2% of outstanding shares or shares with a market value of at least $2 million. That threshold, codified in section 367, is the single most underwriter-friendly change in the amendment package.

Together these three edits pull the PBC close enough to a standard Delaware C-corp that a public-market lawyer can describe the risks in a prospectus without the risks sounding unusual. Which is why, four quarters after the amendments took effect, the S-1s arrived.

The 2021 cohort, in order

Lemonade went first. The insurance carrier priced its IPO on July 1, 2020, two weeks before HB 341 was even signed, and traded as a Delaware PBC from day one. Its S-1 disclosed the dual-purpose structure as a risk factor and moved on. The stock opened at $29 and closed its first day at $69.41, which settled the question of whether the public markets would refuse the form on principle.

Vital Farms followed on July 31, 2020. Pasture-raised eggs, B Corp certification since 2015, PBC charter in place at IPO. The company priced at $22 and closed its first day at $35.

AppHarvest came through a SPAC merger that closed on February 1, 2021, combining with Novus Capital and relisting on Nasdaq as a Delaware PBC under the ticker APPH. The de-SPAC route is its own animal, but the endpoint was another PBC trading on a major exchange.

That set the table for August. Warby Parker filed its S-1 on August 24, 2021 for a direct listing on the New York Stock Exchange under the ticker WRBY. The filing disclosed roughly $393.7 million in 2020 net revenue and a public benefit purpose built around access to eyewear, inclusive hiring, and its one-for-one giving program with VisionSpring. The company had been a Delaware PBC since September 2018, and had previously certified as a B Corp.

Allbirds filed eight days later, on August 31, 2021, targeting Nasdaq under the ticker BIRD. Its S-1 included a defined term the company calls a Sustainable Public Equity Offering, or SPO Framework, with twenty-odd environmental and social standards the underwriters committed the deal to. That framework is a marketing overlay on top of the statutory PBC, not a new entity form, but it is the first time a major IPO has bundled the charter with a set of public covenants about how the issuance itself would be conducted.

What the cover pages actually disclose

A PBC on the cover of an S-1 triggers three passages that are not on a normal Delaware cover page.

The first is the statement of public benefit in the charter, quoted in the prospectus. Warby Parker's is built around helping people "see" in the broadest sense, including through its eyewear-donation operations. Allbirds recites a purpose around using business to positively impact the environment. Lemonade's original filing framed its benefit as using technology to make insurance more transparent and to give unused premiums to nonprofits selected by policyholders. These statements are enforceable only under the DGCL's own mechanics, which is to say, by stockholders voting and by the 2% derivative standard. They are not consumer-protection clauses, and plaintiffs cannot use them to sue as non-stockholders.

The second is the biennial report requirement. Section 366(b) requires a PBC to deliver a statement to stockholders at least every two years describing its pursuit of the specific public benefits in the charter and its overall performance against those benefits. The statute does not require the report to be audited, to be public, or to use any third-party framework. Public PBCs have generally elected to publish anyway, because investor-relations teams would rather lead than have the report pried out of them under a proxy fight. The 2021 field report we ran in March walked through how Lemonade and Vital Farms were actually operating the biennial-report duty in their first public year.

The third is the 2% derivative threshold, which the S-1s describe as both a protection and a risk. For stockholders, it means a PBC cannot be sued into mission drift by a ten-share activist. For a minority investor who thinks management is using the benefit-purpose language as a shield, the threshold is the wall they will hit first.

The conversion question

A private company considering a pre-IPO conversion to PBC is in a different posture in September 2021 than it would have been in 2019. The 2019 revisit on the PBC described a supermajority vote and live appraisal rights as the two biggest barriers. Both are gone. A board can call a special meeting, circulate a proxy with the amended charter, win a majority, and file the restated certificate the same week. The mechanics are not harder than any other charter amendment.

What has not changed is the underwriter conversation. Banks want to know that the public-benefit purpose will not surface in diligence as a drag on share-price maximization during a lockup, a follow-on, or an eventual sale. The answer they want, and the answer the amended statute now lets counsel give, is that the board's balancing duty under section 365 is enforceable only by holders clearing the 2% floor and only through the duty-of-loyalty framework, which preserves the business judgment rule for non-conflicted decisions. That is close enough to normal DGCL practice that the diligence memo fits on one page.

The tax picture is unchanged from our earlier writeups. A Delaware PBC is a C-corp for federal tax purposes, it files Form 1120, it pays the 21% corporate rate set by the Tax Cuts and Jobs Act, and it computes Delaware franchise tax on the same authorized-shares or assumed-par schedule that any other Delaware corporation uses. The 2018 revisit covered the benefit-reporting mechanics that survived into the 2020 amendments without material change.

The certification question, again

B Lab certification is not the same thing as a PBC charter. A company can be one, the other, both, or neither. Warby Parker is both. Allbirds is both. Lemonade is a PBC without B Corp certification. Vital Farms is both. AppHarvest is a PBC without B Corp certification. The S-1s reliably distinguish the two in the risk factors, because the certification is an arrangement with a private nonprofit and can be lost or altered on B Lab's own timetable, while the PBC status is a feature of the charter that only a stockholder vote can change.

The 2017 writeup on the public benefit corporation argued the certification was then doing more of the signaling work than the charter was. The August S-1s invert that. The word "PBC" now sits on the registration statement. The B Corp logo sits on the marketing site. The two pieces of paper have swapped places in terms of which one the capital markets lean on.

What this cohort probably does not settle

A first generation of public PBCs does not settle whether directors will actually use the balancing duty as a defense against hostile takeovers or activist campaigns. No PBC has yet been the target of a serious Revlon-mode sale process, and no Delaware court has yet held on how section 365's balancing obligation interacts with Revlon duties in a change-of-control transaction. The doctrine is coming; it is not here.

Nor does the cohort settle how auditors and accounting firms will treat the biennial report. None of it is within the scope of the PCAOB audit of the financial statements. Whether investors eventually demand independent assurance on the benefit report, in the way they demanded SOC 2 reports once cloud procurement got serious, is an open question. A few large PBCs have hired external sustainability-reporting firms to review the benefit sections. Most have not.

And it does not tell us what happens if a PBC's stock price diverges sharply from the benefit purpose in a bad quarter. The 2016 introduction to the benefit corporation flagged this as the core test five years ago and it remains the test now: when a board has to choose between a number the market wants and a promise the charter made, the statute says balance, the market says explain, and the outcome is a function of which side has the louder shareholder base that week.

The operating takeaway for September 2021

If you are forming a new company today and you believe the business has a defensible public benefit, the PBC charter is cheaper to use than it has ever been. Filing fees are identical to a standard Delaware C-corp, which is to say $89 for the Certificate of Incorporation under the schedule posted by the Division of Corporations, and annual maintenance runs on the same franchise-tax mechanics with the same minimum of $400 under the assumed-par-value method. Nothing about the PBC form costs extra in dollars; the premium, if any, is in the discipline of writing a specific benefit purpose you can actually report against every other year.

If you are a late-stage private company eyeing a 2022 filing window, the conversion is a two-week exercise and the underwriter conversation has been de-risked by the August cohort. The statute is no longer the hard part. The hard part is writing a benefit purpose specific enough to mean something and general enough to survive a pivot.

Sources

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