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Public Benefit Corporations (PBCs) are corporate entities that are legally structured to take into account the interests of social good in addition to maximizing shareholder value. In short, a PBC structure allows businesses to focus on both profits and benefits for society.
Public Benefit Corporations (PBC) are for-profit companies that pursue a social mission. They have been recognized by the government as being in the public interest, rather than just in pursuit of profit.
Maryland is the first U.S. state to pass benefit corporation legislation. As of March 2018, 35 states and Washington, D.C., have passed legislation allowing benefit corporations to be formed.
At present, there are more than 4,000 Public Benefit Corporations in the United States, including well-known companies such as Plum Organics, This American Life, and Kickstarter.
A public benefit corporation must report to its stockholders every two years on how it advances its public benefit purpose and promotes the interests of stakeholders.
In recent times, many startups have shown interest in this structure since not only does it allow businesses to focus on their profits, but also benefits the community and people.
The Public Benefit Corporation is a relatively new type of corporation that was launched in 2010. As a result, not many people are aware of the purpose of a PBC company. The following sections describe the objectives of a Public Benefit Corporation (PBC):
In today's world, companies are often criticized for putting profits ahead of the public good. PBCs offer a solution to that criticism by allowing companies to take into account social and environmental factors when making business decisions.
As stated, PBC is a corporation that is legally required to consider social good when making decisions.
Unlike other traditional companies, the board of directors of a PBC company can take decisions and act for the company's public benefit without the fear of liability, even if those decisions might affect the company's profits.
Despite this, the PBC is still a for-profit corporation, just as a limited liability company (LLC) or C corporation would be. So, unlike a nonprofit with a tax-exempt status, a PBC can still pursue profit as one of its goals and engage in profit-generating activities.
Corporations used to be run solely to meet shareholder value. It meant that corporations would often engage in activities that were not in the interest of society. Many environmental, social, economic and other problems are created by certain corporations because of this.
To prevent this, some states are setting up Public Benefit Corporations to ensure that companies are run in the interest of society.
As part of the reporting requirements and public benefit purpose, PBC companies are expected to operate with a high level of accountability and transparency.
Most businesses view becoming a PBC and becoming a Certified B Corp as the same thing. However, they are actually quite different in many ways.
PBC is a type of legal business entity, like a corporation or LLC. It encourages a corporation to consider the interests of the public good and operate in a responsible and sustainable manner.
However, a B Corp or Certified B Corporation is a third-party certification similar to Fair Trade or LEED.
The B-Corp certification is an independent, third-party certification for businesses that meet rigorous standards of social and environmental performance, accountability, and transparency. B Lab, the nonprofit behind the certification, defines a Certified B Corporation as a hybrid entity that is equally focused on creating profits and addressing significant social and environmental challenges. B Lab's certification process involves a comprehensive review of a business's performance in all three areas. Businesses usually pursue a B Corp certification to increase their credibility.
Unlike traditional for-profit corporations, which legally must pursue profit above all else, B Corps are required to consider the impact of their decisions on their workers, suppliers, communities, and the environment.
Additionally, B Lab requires that a Certified B Corp re-incorporate as a PBC within two to four years after going public.
PBCs may or may not be B Corps, and B Corps may or may not be PBCs. However, there are some companies that have both statuses, like AltSchool.
Since PBC includes the term "Public Benefit", many people get confused and mistakenly think they are the same as non-profits. However, this is not true. PBCs are for-profit companies with a goal to generate revenue.
To be more precise, PBCs specify "public benefit" as their purpose, while nonprofits are driven by a "charitable” purpose.
Non-profit organizations, also known as 501(c)(3) organizations, are organizations that operate for the benefit of the public. The main purpose of a non-profit is to raise money or awareness for a cause that they want to help out. It's not officially a business or corporation, but instead, it is recognized as a non-profit organization.
While a non-profit's sole mission is to pursue its charitable purpose, a PBC company, on the other hand, focuses both on the public good as well as the financial objectives of its shareholders.
Moreover, non-profit organizations are exempt from paying income tax by the IRS since they provide public service or promote social welfare. However, they do have to file a 990 form each year to keep their tax exempt status. Meanwhile, PBCs are taxed normally in the same way as any other for-profit company.
Non-profit organizations face some limitations when it comes to generating income.
In addition to grants and donations, crowdfunding campaigns are a popular way for nonprofits to raise funds. Nevertheless, nonprofits are not permitted to raise a substantial amount of money, or they risk being taxed.
In contrast, PBCs can raise cash from investors and venture capital firms to run their operations and scale.
For example, HandUp is an online platform that simplifies the process of giving to nonprofit organizations. The company is incorporated as a PBC to gain access to equity funding and to generate revenue.