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Public Benefit Corporations: The new way to do business

By Ecolytics Team
November 9, 2022

Public benefit corporations (PBCs) are a new way to operate a for-profit corporation, one legally required to think about the effects its decisions will have on society, not just shareholders.  Unlike a nonprofit, though, a PBC is still a for-profit business, like a limited liability company (LLC) or a C corporation. They have a socially beneficial purpose, but they also are a profitable business.

As stated, PBCs are corporations legally required to take into account the public good in their decisions. PBC incentivizes the company to think about public interest, to act responsibly, and in sustainable ways. Directors have to perform their duties honestly, with a view toward the best interests of the company and its shareholders.

Directors Liability

In contrast to other conventional corporations, a board of directors in a PBC can make decisions and take actions that are for the benefit of society, even when these decisions may impact a corporation's bottom line. Unlike in a standard company, where the board generally has to think about maximizing shareholder value as the primary directive, members of a PBCs board also have to think about the best interests of both the people who are being substantially affected by the company's actions, as well as specific societal benefits as set forth in the company's charter. 

Incorporating as a Public Benefit Corporation

A business can incorporate from the start as a PBC, or existing businesses can convert to a PBC through shareholder approval of an amendment of the business’ charter adding a specific public benefit purpose of the business. Once this amendment is passed, the business must report on their efforts to advance the public benefit purpose. Becoming a PBC is a legal process, which becomes more difficult to convert to the longer a business waits to reincorporate. B Lab states it has established a Multinationals & Public Markets Advisory Council (MPMAC) to address various obstacles making it difficult for multinational, publicly traded, private companies to qualify as benefit corporations under the B Corp certification. It is recommended to consult legal counsel before making this change. Moreover, not all states in the US allow for businesses to incorporate as a PBC. Check to see if your state allows for companies to incorporate as a Public Benefit Corporation: https://usca.bcorporation.net/benefit-corporation/

Public Benefit Corporation vs B Corp Certification

While both created by B Lab, becoming a Public Benefit Corporation and becoming a B Corp are very different. A Public Benefit Corporation requires the legal process described above and it is a way of establishing a business. The B Corp Certification, on the other hand, is a business that meets high standards across various areas, ranging from environmental factors to diversity of employees, as defined through the B Corp Assessment and certified by B Lab. 

Read our blog What does B Corp mean? to learn more.

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