PUBLIC BENEFIT CORPORATIONS ARE NOW AN OPTION IN DELAWARE

Delaware recently joined the fast growing Benefit Corporation “club”. Effective August 1, 2013, Delaware became the 20th state to adopt its own version of the Benefit Corporation. The provisions governing this new business entity can be found under new Subchapter XV of the Delaware General Corporation Law. Earlier this year you may recall (click here) I discussed how Pennsylvania became the 12th state to adopt its version of the Benefit Corporation.

The Delaware Benefit Corporation is almost identical to the Pennsylvania Benefit Corporation. Both acts are designed to allow “social” entrepreneurs to focus not only on the bottom line but to also consider other non economic societal factors (community, environment, employees etc…). Both acts have provisions governing allowed purposes, accountability and transparency requirements (although Delaware has an every 2 year reporting requirement as opposed to Pennsylvania’s every year).

One interesting difference between the two states relates to derivative litigation (click here for link to derivative information on Danziger Shapiro website). While Pennsylvania is silent with respect to minimum share ownership requirements for shareholders to bring derivative actions, Delaware decided to establish minimum share ownership requirements. Most likely, this is a reflection of Delaware recognizing the practical consequences that will follow by allowing officers and directors to consider subjective societal concerns when making business decisions. Namely; not everyone shares the same political, religious and social concerns. By placing a minimum share ownership requirement in order to bring a derivative action, Delaware is just trying to reduce the strain on an already overburdened court system.

It remains to be seen whether this new business entity will take off. It certainly is gaining steam in terms of being available as a new choice of entity. However, the tax incentives that are supposedly going to be offered to such corporations have not been fleshed out yet at the local level. Perhaps when this happens the Benefit Corporation will gain traction. For now, the only real reason you might choose to become a Benefit Corporation is that you are socially conscious and believe a corporation has a responsibility to focus on more than just the bottom line. Whatever your reason for considering the Benefit Corporation, or any choice of entity for that matter, please call us at Danziger Shapiro for assistance. We will be happy to assist you with this and any other matter concerning you and your company.

This entry is presented for informational purposes only and is not intended to constitute legal advice.