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Editorial 10 MIN READ

The public benefit corporation, twenty months later

Delaware's 2019 alternative-entity package extends public-benefit status to limited partnerships and leaves Subchapter XV alone

The Editors
Staff, Incorporator.org
10 min read Updated
Contents 7 sections
  1. What the 2019 package actually did
  2. What the Council did not do
  3. Where the listed PBC story sits in mid-2019
  4. What the LP subchapter changes, and what it does not
  5. Where 2019 leaves the choice
  6. A narrow loose end
  7. Sources

elaware's 2019 amendment package to the General Corporation Law and the three alternative-entity statutes was signed by Governor John Carney on June 19, 2019 and will take effect on August 1, 2019. The package does not touch the public benefit corporation statute. It adds a parallel subchapter to the Delaware Revised Uniform Limited Partnership Act that authorizes a "statutory public benefit limited partnership," finishing a job the legislature started a year earlier with the LLC version.

That is the 2019 story on this form, and it is a deliberate one. The Delaware Corporation Law Council looked at Subchapter XV, looked at the docket, and left it alone.

What the 2019 package actually did

Senate Bill 88 of the 150th General Assembly is this year's DGCL amendment vehicle. Its headline move is a new § 116 establishing safe-harbor methods for executing and delivering corporate documents electronically, a tidy-up that brings Delaware's statute in line with how deals have been signed for a decade. SB 88 also revises notice, proxy, and registered-agent provisions, and it retires a handful of ambiguities the Chancery bench had flagged. It does not open Subchapter XV. The text of § 362 through § 368, including the two-thirds conversion threshold set in 2015 and the § 365(b) informed-and-disinterested safe harbor, carries into the 2019 code unchanged.

The alternative-entity side is where the public-benefit work lives this year. SB 89 (DLLC Act), SB 90 (RUPA), and SB 91 (DRULPA) move through the same July 1 through August 1 window. The DRULPA amendment adds a new Subchapter XII authorizing a statutory public benefit limited partnership, at 6 Del. C. §§ 17-1201 through 17-1208. The structure mirrors the 2018 LLC amendment, which added Subchapter XII to the DLLC Act at 6 Del. C. §§ 18-1201 through 18-1208 creating a statutory public benefit limited liability company.

Both alternative-entity subchapters are built on the same eight sections. The first two define the form and require the certificate and governing agreement to identify a specific public benefit. The third (since repealed prospectively) sets voting requirements for certain amendments and mergers. The fourth imposes a balancing duty on general partners or managers that tracks § 365 of the corporate statute. The fifth requires periodic statements and permits but does not require third-party certification. The sixth provides a derivative-suit mechanism with ownership thresholds similar to § 367. The seventh preserves the ability of ordinary LPs and LLCs to pursue public benefits without formal subchapter status, and the eighth preserves the balancing choice where another law provides for accomplishing the same purpose.

The practical effect is that a Delaware social enterprise now has three statutory wrappers to pick from: the PBC under Subchapter XV of Title 8, the statutory public benefit LLC under Subchapter XII of Chapter 18, and the statutory public benefit LP under the new Subchapter XII of Chapter 17. The corporate version remains the form of record for a venture-backed issuer. The LLC version is useful for a family or closely held business that wants a mission wrapper without a corporate apparatus. The LP version fills a gap for funds and holding-structure vehicles that want a mission commitment their general partner and limited partners can both point to.

We walked through how Subchapter XV actually reads, and who the form fits, in our 2017 piece on Delaware's public benefit corporation, four years in, and revisited the national picture in the spring 2018 piece on benefit corporation, revisited. This article is the third leg of that stool: the 2019 updates, what they do, and what they do not.

What the Council did not do

Reading the absence is as useful as reading the presence. The Corporation Law Council takes its PBC cues from three places: the section bar's deal experience, the Chancery bench's opinions, and the Secretary of State's filings volume. On all three, the 2018 to 2019 stretch produced little that would justify an amendment.

There is still no Chancery opinion that construes § 365 on the merits. The § 367 derivative-suit threshold, 2% of outstanding shares or for listed PBCs the lesser of 2% or $2 million in market value, has filtered out nuisance claims the way its drafters hoped. The biennial § 366 reporting cadence has not produced a discovery controversy. The § 362 charter-disclosure rule, softened in 2015 to drop the mandatory "PBC" in the legal name, has held up. The safe harbor in § 365(b), under which a director satisfies the fiduciary duty if the decision is both informed and disinterested and not such that no person of ordinary, sound judgment would approve, has not been tested or trimmed.

Filings volume is the other signal the Council watches. The Division of Corporations does not publish a PBC count, but practitioner estimates put the cohort somewhere in the low thousands at this point, with growth concentrated in consumer packaged goods, renewable-energy platforms, and edtech. That is a steady run rate, not a stampede, and steady run rates do not drive statutory reform.

The Council's decision to extend the public-benefit concept to LPs in 2019, rather than rework Subchapter XV, is consistent with its usual method. The lawyers on the Council prefer to fix problems that show up in practice and leave working statutes alone. Subchapter XV is a working statute.

Where the listed PBC story sits in mid-2019

Laureate Education remains the only Delaware PBC listed on a major U.S. exchange. LAUR priced its IPO at $14 on January 31, 2017, after underwriters had marketed a $17 to $20 range, and has traded below its IPO price for most of the two and a half years since. In early 2019 Laureate announced and executed a program of asset sales. The sale of the University of St. Augustine for Health Sciences closed in February 2019 for a $400 million transaction value, with roughly $357 million of net proceeds going to debt repayment. The sale of the company's Spanish and Portuguese institutions closed in June 2019 and brought net proceeds of approximately $908 million, which the company has used to retire the balance of its 2024 term loan. These are strategic decisions about the for-profit education portfolio, not about the charter. The PBC designation has traveled through the divestitures without incident.

That is the honest read on the public-market signal. One issuer, one chart, a sector story that has nothing to do with Subchapter XV, and no second IPO yet to triangulate against. A founder choosing this form in July 2019 who plans to list later is making the same bet the Laureate founders made in 2016, with two and a half years of additional silence from the cases. The silence is evidence of something, but not yet evidence enough to price.

Private M&A has done more work. Danone completed its acquisition of WhiteWave in 2017 and kept WhiteWave's several PBC subsidiaries alive inside the combined entity. Plum Organics remains a Delaware PBC inside Campbell Soup. These are routine corporate transactions in which the target's PBC status survived the deal because neither the buyer nor the seller treated the designation as load-bearing in the negotiation. The form clears the deal table; that is most of what founders wanted from it.

What the LP subchapter changes, and what it does not

Reading the new DRULPA language next to the 2018 DLLC language is useful. The two subchapters are drafted as twins, and the drafting reflects a view that the substantive rules for a mission-committed alternative entity should be the same whether the vehicle is an LLC or an LP. Both require the certificate and the governing agreement to identify the specific public benefit and to describe the entity with a statutory label. Both impose on the governing persons, the general partner for an LP and the manager or members for an LLC, a balancing duty analogous to § 365. Both require at least biennial statements to the partners or members describing objectives, standards, and assessments of success. Neither requires a third-party standard; both permit the governing agreement to require one.

What these two subchapters do not do is give founders a tax angle they did not have before. A statutory public benefit LLC is still taxed as a partnership or as a disregarded entity under the usual check-the-box mechanics, or as a corporation if it affirmatively elects. A statutory public benefit LP is still taxed as a partnership absent an election. Neither form offers any charitable deduction or exempt-entity treatment by virtue of the label. The 501(c)(3) plumbing lives in a separate vehicle if it lives at all.

The two subchapters also do not authorize a new conversion pathway between forms on favorable terms. An existing LLC that wants to become a statutory public benefit LLC still amends its operating agreement and its certificate of formation under ordinary DLLC Act mechanics, with whatever vote the existing agreement requires. The same is true for an LP and for a PBC. Subchapter XV's conversion thresholds, two-thirds in or out, unchanged since 2015, are still the headline numbers for the corporate form.

Where 2019 leaves the choice

A mission-committed founder forming in Delaware in July 2019 picks among the three wrappers roughly as follows.

Pick the PBC if the company expects to raise institutional equity, issue preferred stock, or eventually list. The corporate apparatus is what the ecosystem built around Subchapter XV knows how to diligence, close, and litigate. The twenty-month stretch since the last statutory amendment is a feature, not a bug, for a founder who wants to know what they are signing into.

Pick the statutory public benefit LLC if the company is a family business, a professional-services firm, or a closely held operating company whose members want a mission commitment that cannot be unwound at a single managing member's discretion. The LLC form's flexibility on cash distributions, management structure, and vesting rules is worth keeping when the public-benefit obligation is the only thing that needs to look like a corporate statute.

Pick the statutory public benefit LP if the vehicle is a fund or a holding structure where a general partner with fiduciary obligations to limited partners also wants those obligations framed by a mission purpose. The form is new, and practitioners will spend the next year working out forms and side-letter language against § 17-1204 and § 17-1205. For an ordinary operating company, the LP wrapper adds friction without a corresponding gain.

In all three cases, the B Lab certification is a separate product sold by a separate entity and should not be confused with the statutory form. Delaware has never required third-party certification and still does not. A PBC, statutory public benefit LLC, or statutory public benefit LP can satisfy its reporting duty with an internal memo to its equity holders. Whether it should is a question about the promise, not about the statute.

A narrow loose end

The Corporation Law Council's 2019 forbearance on Subchapter XV is one editorial signal. Another one sits in the Chancery docket. A handful of private disputes involving PBCs have settled in the last two years without producing a written opinion. One of them, sooner or later, will not settle, and the court will get the chance to say what § 365 means on a contested record. When that opinion arrives, the readings of this form that currently live in academic articles and practitioner client alerts will become case law. The form will be whatever the first opinion says it is, and the six-year-old statutory language will not have moved an inch.

Until then, the sensible default for a founder is to pick the form because it matches a specific promise the business is making, and to treat the statutory obligation as a floor on what to document rather than a ceiling on what to do.

Sources

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