Cross-posted at Conglomerate.
This is the first of three posts analyzing the proposed Delaware Public Benefit Corporation (“PBC”) amendments. The posts will compare the proposed PBC amendments to the Model Benefit Corporation Legislation (the “Model”).
In a few key areas, the PBC allows more private ordering that the Model. Perhaps the most striking difference is that the PBC does not require a third party standard for measuring public benefit (a cornerstone requirement of the Model) unless the requirement is included in the PBC’s certificate of incorporation or bylaws (§366(c)). In some ways, Delaware’s approach in the benefit corporation debate reminds me of how it handled the proxy access debate: expressly allow, but leave most of the details to the individual corporations.
That said, the PBC is not as flexible as the Flexible Purpose Corporation (“FPC”) (California) or the Social Purpose Corporation (“SPC”) (Washington); the PBC requires that the PBC be operated in a “responsible and sustainable manner” (§362(a)). That broad general statement in the proposed PBC amendments, which is not present in the FPC or SPC statutes, seems to be one of the main reasons B Lab, the primary force behind the benefit corporation movement, has expressed public support for the PBC. Whether B Lab is completely supportive of the PBC and all its deviations from the Model is not entirely clear.
Below, I compare and contrast some of the key provisions of the Delaware’s PBC and the Model.
Benefit Director. PBC – not mentioned. Model – required for public companies. (§302(a)).
Benefit Officer. PBC – not mentioned. Model – optional (§304(a)).
Benefit Report (Preparing). PBC – no less than biennially (§366(b) & (c)). Model – annually (§401(c)).
Benefit Report (Public Posting). PBC – optional (§366(c)). Model – required to post benefit report on company website; if no website must provide the benefit report for free to anyone who asks for a copy (§402).
Identification of Specific Public Benefit Purpose(s). PBC – required (§362(a)). Model – optional (§201(b)).
Minimum Ownership for Shareholder Standing in Derivative Lawsuits. PBC – 2%; or if the PBC is publicly traded then the lesser of 2% and $2 million in market value (§367). Model – 2% (§305(b)(2)(i)).
Third Party Standard. PBC – optional (§366(c)). Model – mandatory (§§102 & 402).
Third Party Certification. PBC – optional (§366(c)). Model – optional (§401(c)).
The only area above where the PBC is less flexible than the Model is in requiring the identification of specific public benefit purpose(s), which will be discussed in the next post on director guidance.