Del. officials eye public benefit corporations
DOVER, Del. (AP) — The Markell administration on Thursday introduced legislation that would establish a new kind of business in Delaware — for-profit companies that seek to balance the bottom line with social consciousness.
Public benefit corporations are managed not only for the benefit of stockholders, as most corporations are, but also for community and public interests.
A dozen other states, including New York, California and neighboring Maryland, already recognize public benefit corporations.
Officials said the addition will enhance Delaware's status as the leading state for corporate law. Delaware is the legal home of more than 1 million legal entities, including many of the nation's largest publicly traded corporations.
Markell said the legislation provides a clear legal framework for socially conscious entrepreneurs and corporations to pursue profit and public benefit.
The bill identifies a public benefit as a positive effect, or a reduction of negative effects, on people, entities, communities or other non-stockholder interests. Such effects could include, but are not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, and scientific or technological nature
Such a corporation would be required to identify one or more specific public benefits that it would promote. Directors would have to balance the financial interests of stockholders with the best interests of those affected by the corporation's conduct, as well as the specific public benefits identified by the corporation.
While many corporations can and do make charitable contributions, supporters of the legislation said it will allow entities incorporated in Delaware, for the first time, to focus on something other than maximizing wealth for shareholders.
Jay Coen Gilbert, co-founder B Lab, a nonprofit organization working to harness the power of business to solve social and environmental problems, said Delaware's backing of public benefit corporations is "a big deal."
"They want to make money and they want to make a difference," said Gilbert, whose group has worked with more than 70 firms already incorporated in Delaware.
Gilbert said businesses that are formed as public benefit corporations are much more philanthropic than traditional corporations and more involved in their communities.
The legislation also specifies that the fiduciary duties of directors of such corporations do not extend to the beneficiaries, and that only stockholders could bring derivative lawsuits to enforce the benefit provisions.
Directors would be entitled to the protections of Delaware's "business judgment rule" in balancing the interests of shareholders and beneficiaries. Like directors of traditional corporations, they also would be protected from liability regarding their decisions through charter provisions regarding exculpation and indemnification.
A public benefit corporation would have to send stockholders a statement at least once every two years regarding its promotion of the public benefit or benefits identified in its charter, and the best interests of those affected by its conduct.