How Does a Public Benefit Corporation Differ From Other Corporations?

A public benefit corporation is a type of for-profit company that has to weigh any profit it makes against the public benefit its directors identify. The charter of such an organization must contain language that commits them to create a general public benefit. It is legally obligated towards the society as a whole, not just its shareholders when it comes to decision-making. Also, it must be able to prove that it has the best interest of its customers, workers, suppliers, community, and the environment in mind. The board decides how to benefit the public, then sets up internal controls to monitor the balance. It is not subject to shareholders suing for neglect of duty since this would stand against public policy. Its assets may not be distributed to shareholders at any time, including its end.

How Does a Public Benefit Corporation Differ From Other Corporations?

The defining feature of a public benefit corporation is the inclusion of a public benefit clause in its charter. This obligates the company to consider the effect of its decisions on the public, not just shareholders. Public benefit corporations must also produce an annual report detailing their pursuit of this public benefit, as well as their overall social and environmental performance. While ordinary for-profit corporations only focus on maximizing their profits for the benefit of shareholders, public benefit corporations balance their goal of making money with an additional social benefit. Having a fiduciary duty to the public distinguishes public benefit corporations from other types of businesses. Differentiating between the two types of companies is not always easy though, since sometimes a corporation can have both goals. When public benefit corporations are to be compared with nonprofit entities, the difference is that public benefit corporations can generate profits and have a board of directors, which nonprofit entities usually do not have. In terms of taxation, public benefit corporations are similar to C corporations in the United States. They are subject to income tax, and their shareholders also pay taxes on any dividends they receive.

Advantages of a Public Benefit Corporation

There are several advantages of being a public benefit corporation. These include:

Moral Authority

A public benefit corporation has the moral authority to make decisions in the best interest of the public, not just its shareholders. This can give it an advantage when competing against traditional for-profit corporations.

Easier Fundraising

Because a public benefit corporation is obligated to pursue social good, it can be easier to raise money from donors and foundations.

Attracting Top Talent

Top talent is often drawn to social enterprises, and a public benefit corporation can offer employees the opportunity to work for a company with a dual mission of making money and doing good.

Public Trust

Having the public’s trust can be beneficial, as it can help a company attract customers, investors, and employees.

Disadvantages of a Public Benefit Corporation

There are also a few disadvantages of being a public benefit corporation. These include:

Increased Regulation

Public benefit corporations are subject to more regulation than traditional for-profit corporations. This can be burdensome and time-consuming.

Dual Mission Can Make Decisions Difficult

Balancing a for-profit motive with a social good motive can be difficult. A public benefit corporation must weigh both motives equally, which can sometimes lead to conflicting goals.

Lack of Transparency

Public benefit corporations have some information that is legally private. This means shareholders and those who invest in this type of company may not have access to all the information they would like.

Restricted Ability to Make Political Contributions

Public benefit corporations are not allowed to make political contributions like other for-profit corporations. This can be a disadvantage when competing for government contracts.

The Bottom Line

Public benefit corporations are a relatively new type of company, and there is still some ambiguity about how they should be structured and what their obligations are. There are advantages and disadvantages to being a public benefit corporation, and it is important to weigh these carefully before making the decision to become one.

Public benefit corporations are taxed like C corporations in the United States. This means they pay income tax, and their shareholders also pay taxes on any dividends they receive.
A public benefit corporation can make a profit while a nonprofit cannot. Furthermore, public benefit corporations are subject to more regulation than traditional for-profit corporations.
Public benefit corporations are subject to increased regulations because they have a dual mission of making money and doing good. This can be difficult to balance, so the government wants to make sure these companies are not taking advantage of their social good motive.
Some examples of public benefit corporations include Patagonia, Kickstarter, and King Arthur Flour.
Typically, a corporation will list its status as a public benefit corporation in the legal section of its website. It might also be listed in their bylaws or charter documents.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.