What’s the benefit of a Public Benefit Corporation?

Robin Minick, June 16, 2020

The COVID-19 pandemic and recent racial injustice have caused many of us to do some soul-searching and ask how each of us can make a contribution, help our world become a better place.

It’s also reminded me about the importance of social enterprise, the concept that businesses can be catalysts for change and good by combining the mission of a nonprofit or government agency with the practices and market-driven approach of a for-profit business.

However, this does raise legal questions about the organization’s structure: Is it devoted to maximizing shareholder value or is it operating to serve the public? Actually, it can be both. Public benefit corporation is one legal designation for an enterprise that operates with this twofold mission. Some may think the name itself is an oxymoron: A corporation benefiting the public? Absolutely!

Social enterprise has always been a guiding principle of Wright Connatser and its work and we’ve handled public benefit corporation creations for several clients. The PBC concept is fairly new to Texas as the Legislature approved it in 2017. Its purpose is to give the enterprise a legal organizational structure that allows it to pursue a dual mission of returning value to its shareholders while serving the interests of another defined audience.

The PBC is also often confused with a Certified B Corp, as well as the overall social enterprise concept. So let’s clear up some of the confusion.

What is a public benefit corporation?

PBC is a relatively new incorporation strategy available to organizations or other groups that are guided by a mission that benefits the public, hence the name. It is a legal incorporation structure for an organization, just as LLC, corporation, or limited partnership define other kinds of businesses. Organizations with the designation use the acronym PBC after their names.

Why become a public benefit corporation?

To have the best of both worlds – increase shareholder value while making a difference. For example, Akola PBC is in the business of selling jewelry online and through retailers such as Neiman Marcus. Its jewelry is made by Ugandan women. So by organizing as a business that sells to consumers, Akola is helping women in Africa make a living in a country that has traditionally been among the poorest on the globe. The more Akola grows and sells its products, the more women it can employ and serve.

Doesn’t a Certified B Corp achieve the same thing as a public benefit corporation?

Yes, a Certified B Corp does aim to achieve social benefit. However, it is a certification process that an organization achieves (and invests toward). In some ways, it’s similar to the LEED designation for sustainable building standards or the Good Housekeeping Seal for consumer products. B Lab is the nonprofit that administers the designation; once an enterprise meets the B Lab requirements, it is given the B Corp designation.

How does PBC differ from a B Corp?

PBC is a legal incorporation structure, while B Corp is a designation denoting that the organization has met certain requirements demonstrating its social mission.

Is a PBC tax-exempt?

No, as it delivers a return to its shareholders through a profit, it is not tax-exempt.

 

If you think your organization could benefit from being incorporated as a PBC, I’d be happy to discuss it with you. You can contact me at Robin@wrightconnatser.com.