Before getting into what a Public Benefit Corporation is, there needs to be a basic understanding of what is a corporation. A traditional corporation is an entity providing liability shielding for owners and operators with the purpose of conducting any legal business. The corporation is an evolution from the partnership, designed primarily to encourage the growth of businesses by shielding entrepreneurs from lawsuits. The Public Benefit Corporation is perhaps the next evolution of the corporation.
A Public Benefit Corporation, when properly created subject to the laws of the appropriate State, can best be described as a multi-purpose entity. Some corporations such as Pepsi or Disney have several product lines, but there is only one purpose: to make money through any legal business. Some corporations such as Habitat for Humanity or the Red Cross are non-profit corporations dedicated entirely towards one or more of the purposes outlined in the Internal Revenue Code at Section 501(c)(3). A Public Benefit Corporation has both of these purposes.
By statutory definition, a Public Benefit Corporation is a corporation with the traditional business purpose of performing any legal business and pursuing at least one stated public benefit.
As the State laws authorizing the Public Benefit Corporation have not existed for too many years, it is difficult to say exactly why a founder of a company should elect to incorporate as a Public Benefit Corporation. There are several potential benefits. First, there is the potential for business to perform actions that would otherwise contradict the goal of making as much money as possible. Second, there is the ability for businesses to lobby on behalf of an issue which is not related to the core business functions. Third, it reduces the cost as previously a company may need to spin out a part of the overall business to achieve public benefits.
However, there is the counter that the Public Benefit Corporation does not offer enough of a distinction to be worth the additional requirements. The reason is a rule of law called the Business Judgement Rule. In essence, the Business Judgement Rule says that so long as there is a credible business reason for an action, a court will not replace its judgment for that of the business. Thus, many companies do charitable work without running afoul of their stated purpose. The Business Judgement being the value of spending money on charitable means will be recouped through the intangible good will.
Is the Public Benefit Corporation a mere fad, or will the existence of such an entity persuade courts to limit the Business Judgment of traditional corporations? At this time, there are no answers, only questions.