The Delaware Public Benefit Corporation

The Delaware Public Benefit Corporation (PBC) is a distinct legal entity established under Delaware law that allows businesses to pursue both profit and a defined public benefit as part of their corporate purpose. Signed into law on July 17 by Governor Jack Markell, the legislation enabling PBCs represented a meaningful expansion of the corporate forms available under the Delaware General Corporation Law (DGCL), offering entrepreneurs, investors, and mission-driven organizations a legally recognized structure through which social or environmental objectives could be formally embedded alongside the traditional goal of generating shareholder value. Since its introduction, the PBC has attracted growing interest from both startup ventures and established companies, and recent years have seen a dramatic shift in practice relating to this corporate form.

Background and Legislative History

Delaware has long been the preferred state of incorporation for a large share of American businesses, owing to its well-developed body of corporate law, its specialized Court of Chancery, and the predictability and flexibility it offers to corporations and their counsel. The introduction of the public benefit corporation statute extended that tradition of legal innovation by creating a new category of corporation specifically designed to address the perceived tension between profit maximization and broader societal obligations.

Prior to the enactment of PBC legislation, business entities seeking to combine commercial activity with explicit public benefit purposes often faced structural and legal challenges. Standard corporations operating under the DGCL were generally understood to prioritize shareholder returns, while nonprofit organizations lacked the ability to raise equity capital in the same manner as for-profit companies. The PBC form was crafted as a hybrid solution, permitting a company to attract investors while simultaneously committing itself in its certificate of incorporation to a specific public benefit purpose.

The legislation was unveiled by state officials and signed by Governor Markell, reflecting the state's interest in remaining at the forefront of corporate law development. Delaware's action followed broader national conversations about reforming corporate purpose and represented a formal legislative response to advocates who argued that the law should recognize and accommodate mission-driven business models.

Formation of a Delaware Public Benefit Corporation

A public benefit corporation in Delaware is formed in substantially the same manner as any other corporation organized under the Delaware General Corporation Law. The process begins with the drafting and filing of a certificate of incorporation with the Delaware Division of Corporations, the same government office that handles standard corporate filings. The certificate of incorporation for a PBC, however, must include specific language identifying the entity as a public benefit corporation and naming the particular public benefit or benefits that the corporation is organized to pursue.

This designated public benefit must be a benefit to one or more classes of persons, communities, or interests other than the stockholders in their capacity as stockholders. The public benefit purpose is thus embedded in the foundational document of the corporation, making it a legally binding commitment rather than a voluntary or aspirational statement. Unlike a general statement of corporate values or a corporate social responsibility policy, the PBC's public benefit purpose carries legal weight and affects the duties of directors.

Beyond the certificate of incorporation, the remaining mechanics of formation—drafting bylaws, appointing initial directors, issuing stock, and completing organizational minutes—follow the same general procedures applicable to any Delaware corporation. Legal counsel familiar with Delaware corporate law can typically assist founders with navigating the formation process, and the state's legal infrastructure is well-equipped to support PBC formation alongside traditional corporate filings.

Corporate Governance and Director Duties

One of the defining characteristics of the Delaware PBC is the manner in which it modifies the duties of corporate directors. In a traditional Delaware corporation, directors generally owe duties to the corporation and its stockholders, with courts historically interpreting those duties in a manner that prioritizes long-term shareholder value. In a PBC, directors are required to manage the corporation in a way that balances the interests of stockholders with the interests of those materially affected by the corporation's conduct and with the public benefit purposes identified in the certificate of incorporation.

This tripartite balancing requirement distinguishes the PBC governance model from both the standard for-profit corporation and the nonprofit organization. Directors of a PBC must consider not only the financial returns to investors but also the impact of corporate decisions on employees, communities, the environment, or whatever other interests the corporation has identified as the subject of its public benefit. This statutory framework gives directors greater latitude to make decisions that may not maximize immediate shareholder returns if those decisions serve the company's stated public benefit mission.

The legal evolution of the PBC has been the subject of significant commentary and analysis within the corporate governance community. The past two years leading up to recent scholarly discussion have seen a notable shift in how practitioners approach the PBC form, with increasing attention to questions of fiduciary duty, stockholder rights, and the interaction between PBC status and existing Delaware case law.

Access to Capital and Investment Considerations

A key advantage of the Delaware PBC form over nonprofit structures is the ability to raise private capital through equity investment. PBCs can issue stock, attract venture capital, and pursue the same spectrum of financing options available to traditional Delaware corporations. This access to private capital markets has made the PBC an attractive option for mission-driven entrepreneurs who require growth capital but wish to preserve their commitment to a public benefit purpose as a matter of corporate law rather than merely corporate policy.

The American Bar Association has examined the PBC in terms of its formation, operation, and termination, as well as its access to private capital and its participation in initial public offerings and acquisitions. These transactional contexts raise unique considerations for PBCs, particularly in connection with mergers and acquisitions where the acquiring entity may not share the target PBC's public benefit commitments, and in the context of public offerings where the PBC's governance structure and mission must be disclosed to prospective investors under federal securities law.

Investors considering a PBC must understand that the corporation's directors are legally obligated to consider the public benefit purpose alongside financial returns. Some investors view this as a risk factor, as it may constrain the board's ability to pursue purely profit-maximizing strategies. Others view PBC status as a positive signal, indicating that the company's leadership takes its mission seriously enough to embed it in the corporate charter, reducing the risk that the mission will be abandoned under financial pressure or following a change in management.

Conversions to PBC Status

An existing Delaware corporation may convert to a PBC by amending its certificate of incorporation, subject to stockholder approval. This conversion process has attracted attention as established companies have sought to signal or formalize their commitments to broader stakeholder interests. The experience of companies that have undergone this conversion has generated practical insights for corporate counsel and boards considering a similar transition.

Lessons drawn from the conversion experience address both the procedural requirements of the conversion itself and the strategic and communications considerations that accompany a public declaration of public benefit purpose. Companies that have converted have found that articulating a specific and meaningful public benefit purpose—as opposed to a vague or generic aspiration—is essential to ensuring that the conversion carries legal substance and is understood as a genuine commitment by employees, investors, and the public.

Public Benefit Corporations and the Broader Corporate Purpose Debate

The emergence of the Delaware PBC occurred against the backdrop of a broader national and global debate about the purpose of the corporation. Advocates of stakeholder capitalism have argued that corporations should serve employees, communities, and the environment, and not solely the interests of shareholders. Critics of this view have maintained that expanding the scope of director duties beyond shareholder returns introduces ambiguity, reduces accountability, and may ultimately harm both companies and the investors who depend on them.

The Delaware PBC occupies a defined position within this debate by providing a legal mechanism through which companies can voluntarily opt into a broader conception of corporate purpose. Because PBC status must be affirmatively elected and disclosed in the certificate of incorporation, it represents a market-based approach: companies and investors choose the PBC form based on their own assessments of its benefits and costs, rather than having a universal stakeholder-orientation imposed on all corporations.

Delaware's willingness to enact PBC legislation while preserving the traditional corporate form for companies that prefer it reflects the state's characteristic approach to corporate law—offering flexibility and choice rather than mandating a single model of corporate governance for all businesses incorporated within its borders.

Recent Developments

The Delaware PBC has seen increasing use in connection with initial public offerings and corporate acquisitions, raising new legal and practical questions about how the form interacts with the requirements of public company status and the dynamics of M&A transactions. As more PBCs pursue growth and liquidity through these channels, the body of legal precedent and practitioner guidance surrounding the form continues to develop.

The dramatic shift in practice noted by legal scholars reflects both the growing number of entities organized as PBCs and the increasing sophistication with which lawyers, boards, and investors are approaching questions of PBC governance, fiduciary duty, and transactional planning. Delaware's courts and legislature will likely continue to play a central role in shaping the evolution of the PBC as both a legal form and a practical tool for mission-driven business.

See Also

• Delaware General Corporation Law
• Delaware Division of Corporations
• Court of Chancery
• Governor Jack Markell