With the Emergence of Public Benefit Corporations, Directors of Traditional For-Profit Companies Should Tread Cautiously, but Welcome the Opportunity to Invest in Social Enterprise

Authors

McKenzie Holden Granum

Abstract

Social entrepreneurship has become the popular term used to describe business forms that aim to produce profits while also seeking to significantly advance one or more social or environmental goals. In response to an increase in social entrepreneurship across sectors—from progressive industries like organic farming to conservative industries such as insurance and banking—several states have adopted new corporate governance structures. Such legislation allows incorporating businesses to choose an off-the-shelf formation type that embeds a social mission into its legal structure. The bulk of the newly implemented statutory forms provide not only a new framework for social entrepreneurs to work within, but also an indication to socially conscious investors, consumers, and business partners that these businesses are obligated and dedicated to operating in a responsible and sustainable manner—in addition to their duty to generate shareholder profits. Public Benefit Corporations (PBCs) are generally formed in the same manner as traditional for-profit companies; however, a PBC entity is usually required to identify in its certificate of incorporation a statement of purpose identifying one or more specific public benefits to be promoted by the corporation, and the entity must have a name that clearly identifies its status as a PBC. This Note considers the Delaware PBC statute and addresses the prospective risk that traditional shareholder expectations could dissuade directors of publicly traded for-profit companies from investing in and acquiring PBCs as wholly owned subsidiaries; specifically, because inconsistent corporate purposes between a parent company and its subsidiary could result in an unprecedented new type of director liability.

Recommended Citation

McKenzie Holden Granum, With the Emergence of Public Benefit Corporations, Directors of Traditional For-Profit Companies Should Tread Cautiously, but Welcome the Opportunity to Invest in Social Enterprise, 38 SEATTLE U. L. REV. 765 (2015).