Incorporator The Journal of U.S. Formation
Start Free Quiz
Editorial 6 MIN READ

The Delaware public benefit corporation, nine years in

Who actually uses the PBC form, what the 2020 amendments changed, and how it sits next to B Corp certification

The Editors
Staff, Incorporator.org
6 min read Updated
Contents 7 sections
  1. What subchapter XV does
  2. What HB 341 fixed in 2020
  3. Who adopted it at scale
  4. PBC versus B Corp certification
  5. The federal reporting angle
  6. A nine-year read
  7. Sources

elaware's public benefit corporation statute took effect August 1, 2013. Nine years later the form has done something most new corporate vehicles do not: it has accumulated a public-market track record, a set of real conversion precedents, and enough amendments to suggest the legislature actually expects it to be used.

This is a status check on the Delaware public benefit corporation as of late 2022. What the statute says, what the 2020 amendments changed, and who at scale has actually bothered to adopt the form.

What subchapter XV does

The PBC is a for-profit Delaware corporation organized under 8 Del. C. ch. 1 subchapter XV, codified at sections 361 through 368. The certificate of incorporation must identify one or more "specific public benefits" the corporation is organized to promote, and the name must include a designation signaling PBC status (traditionally "public benefit corporation" or "PBC"; the 2020 amendments made that naming requirement optional).

The load-bearing provision is section 365. Directors of a PBC manage the business so as to balance three interests: the pecuniary interests of stockholders, the best interests of those materially affected by the corporation's conduct, and the specific public benefits identified in the charter. A director who makes that balance in good faith does not, by virtue of that balance, violate the duties owed to stockholders. The statute explicitly says the director's decision is not a breach so long as it is informed and disinterested and not such that no person of ordinary, sound judgment would approve.

Section 366 requires the PBC to furnish stockholders, at least biennially, a statement on the corporation's promotion of the public benefits identified in the charter and its pursuit of the best interests of those materially affected by its conduct. The default is biennial; the charter or bylaws may require annual reporting, and many investor-facing PBCs do.

Section 367 gives standing for derivative suits to enforce section 365's balancing duty, but only to stockholders owning at least 2% of outstanding shares, or for public companies at least $2 million in market value. That threshold is deliberate: the drafters did not want a single-share plaintiff steering a public-benefit-compliance lawsuit.

What HB 341 fixed in 2020

The original 2013 statute made it hard to convert into, or out of, PBC status. A 2/3 vote of each class entitled to vote was required, plus the 90% consent of non-voting shares under the original text. That supermajority scared off sitting boards that would otherwise have considered the conversion.

House Bill 341, signed by Governor Carney on July 16, 2020, and effective for the 2020 General Corporation Law amendments, replaced the 90%-of-outstanding threshold with a 2/3-of-outstanding stockholder vote to become, or cease to be, a PBC. It also removed automatic appraisal rights for stockholders dissenting from the conversion, leaving appraisal to the standard DGCL rules. And it made the PBC naming designation optional in the corporate name, so a company could become a PBC without rebranding every contract and letterhead.

Those were technical amendments that behaved like product fixes. The post-HB 341 conversion activity reflects that. The vote threshold had been the binding constraint.

Who adopted it at scale

Through 2022, four adoption stories have done most of the work of proving the form is viable for investor-backed and public companies.

Lemonade (insurance) went public as a Delaware PBC on July 2, 2020. It was the first U.S. PBC to IPO. Its public benefit purpose is built around making insurance a social good by using behavioral economics to reduce conflict between insurer and insured and directing unclaimed premium to charitable causes chosen by policyholders.

Vital Farms (pastured eggs) went public as a Delaware PBC on July 31, 2020. Its charter obligates the company to stakeholder-balanced conduct across farmers, crew, consumers, stockholders, the community, and the environment.

Allbirds (sustainable footwear) went public as a Delaware PBC on November 3, 2021. Its S-1 and charter commit to treating environmental and stakeholder considerations as first-class governance inputs, not marketing.

Veeva Systems (cloud software for life sciences) converted to a Delaware PBC in early 2021. Veeva was the first publicly traded company to convert from a conventional Delaware corporation to a PBC after HB 341 lowered the conversion threshold. The conversion received strong stockholder support at the company's February 2021 meeting, and the charter adopted stakeholder-balancing language tracking section 365.

Those four matter more than a longer list of private PBCs because they demonstrate something underwriters and boards had doubted: a PBC can be taken public, a PBC can be converted into from an existing C-corp with broad stockholder consent, and the public markets will price the security.

PBC versus B Corp certification

The form is often conflated with B Corp certification. They are not the same thing and they do different work.

Delaware PBC status is a legal entity type. It is created by filing a certificate of incorporation under subchapter XV, it imposes the section 365 balancing duty on directors as a matter of Delaware corporate law, and it imposes the section 366 reporting obligation. It is enforced through stockholder standing in Chancery.

B Corp certification is a private certification issued by B Lab, a nonprofit. It is assessed against the B Impact Assessment, renewed every three years, and it requires the company to amend its governing documents to include stakeholder-consideration language. B Lab requires its certified companies in Delaware (and in states with a PBC statute) to adopt the PBC form within a set period after certification, but the reverse is not true: a Delaware PBC is not by virtue of that status a certified B Corp.

The useful mental model is governance versus marketing. Subchapter XV changes how the board owes its duties. B Corp certification is a third-party audit of company practices that a consumer can verify. Companies commonly hold both. Several do not. Most Delaware PBCs formed today are not B Corp certified, and several well-known B Corp certified companies have not converted to PBC form because their home state does not offer one and they do not want to redomesticate.

The federal reporting angle

A Delaware PBC is formed by filing the certificate with the Division of Corporations. That filing makes it a "reporting company" under the Corporate Transparency Act, 31 U.S.C. § 5336. Beneficial-ownership information reports to FinCEN will be required when the reporting rule takes effect January 1, 2024, under the final rule published in the Federal Register on September 30, 2022.

That is worth flagging for founders who read the PBC literature as a stakeholder-governance conversation. The CTA does not care about the public-benefit purpose; it cares that the entity was formed by filing. A PBC carries the same BOI obligations as any other Delaware corporation of its size.

A nine-year read

The PBC form has outperformed the skeptics from 2013. It has been tested in registration statements, in a conversion of a publicly traded company, and in the post-IPO quarters where section 366 reports have to be written and stockholders have to be told whether the public-benefit purpose was actually pursued. None of the four large adopters has unwound. The 2020 amendments pulled the conversion threshold down to a level boards can actually clear, and the conversion pipeline is no longer theoretical.

What remains untested at scale is section 367 litigation. A contested Chancery case about whether a PBC board did or did not balance properly would be the moment the doctrine gets its shape. As of late 2022, the case law on section 365 balancing is thin. That is not a weakness of the form; it is a function of how few PBCs are old enough and public enough to draw that kind of suit. Give it a few more annual reports.

Sources

Keep reading

More from the journal.