To B or not to B (Corp): a quick guide to public benefit corporations and B corps

Harry Doull
Nov 20, 2015 · 8 min read

You might have heard about Warby Parker, Etsy, TOMS or Method being “B Corps” or “benefit corporations” or other official sounding words. What do these classifications actually mean?

I am writing this piece in response to the article the New York Times published announcing that Kickstarter was becoming a Public Benefit Corporation (also known as PBCs for short).

It is a well-intentioned article that brings welcome publicity to this new form of business entity, but it also has some misleading wording, which as a founder of a PBC, has required me to make clarifying statements to people I work with, be they potential investors, advisors, suppliers, corgi actors, etc.

With this post, I aim to debunk some common misconceptions out in the world about Public Benefit Corporations, and separately share why they are a going to be a big part of American business and society in the future.

Public Benefit Corporation (PBC) for Dummies

What’s a PBC? It’s a form of incorporation — i.e. company formation — whereby the Directors of the company have a responsibility not just to deliver profits to their shareholders, but also to deliver social good in some shape or form. That social mission can take many forms, which each company can define.

If you’re familiar with the different forms of incorporation (LLC, C-Corp, S-Corp, etc.), a PBC is exactly the same as a C-Corp, with the addition of that extra social mission.

That addition is important, though: whereas a C-Corp’s directors can be let go for delivering poor returns to shareholders, for PBCs they are on the hook for both providing returns to shareholder and achieving their social mission.

What’s the difference between a Public Benefit Corporation and a B-Corp?

This is a source of a lot of confusion, and understandably so.

In summary:

A public benefit corporation is a form of legal entity, defined in the incorporation documents with the Secretary of State (of Delaware, generally), aka the government.

B-Corp is a certification awarded by a nonprofit called B Lab. B-Corp status is analogous to Fair Trade certification for coffee or getting LEED certification for green building.

What makes things confusing is that some B Corps are also PBCs; but some companies have one of those two things but not the other. How can it be?

Here’s the deal.

For a company to receive B Corp status, one of the requirements is to have their social mission reflected in their articles of incorporation in some shape or form. Some states (e.g. Delaware) offer the option to incorporate as a Public Benefit Corporation, which in itself satisfies that requirement. Some states do not offer that option, and B Lab gives companies from those states the ability to add specific language to their articles of incorporation instead. In a way, it’s a hack to become an unofficial PBC when being a PBC is not an option.

The other thing to know is that PBC status is still a very new thing. It was not until 2013 that Delaware opened its doors to that form of incorporation. This — I presume — explains why Etsy is a B Corp but not a Public Benefit Corporation. That said, it’s likely that Etsy will have to re-incorporate as a PBC in the coming years.

Finally, if a company incorporated as a PBC, it has no obligation to seek B Corp certification. For example, our company, Keap, is a PBC but not a B Corp currently, and we could keep it that way if we wanted. That being said, we do plan on getting B Corp status, which we see as beneficial to furthering our social mission.

Does a Public Benefit Corporation care about profits at all?

This is where I found the Kickstarter NY Times article to be a little misleading to readers unfamiliar with the legal nuances. It states in the opening paragraphs that the company’s founders “could have tried to take their company public or sell it, earning millions of dollars for themselves and other shareholders […] Instead, they announced […] that Kickstarter was reincorporating as a ‘public benefit corporation’”.

The implications here are that 1) PBCs cannot go public or be sold, both of which are false (though to be fair, the article later clarifies this) and 2) that PBCs are incompatible with profits, which is also false.

In fact, their ability to still turn profits is what will make them a really powerful tool for social good. I also believe in Kickstarter’s case that its founders, whom I deeply admire, will probably go on to make millions for both themselves and for their shareholders. And I think that’s good, both morally and from a broader societal and economic perspective.

Morally, because I think someone who builds something with as much social impact as Kickstarter is far more deserving of making millions than, for example, the many bankers who devoted their intellect to packaging sub-prime mortgages into securities to be sold to unsophisticated investors, and who pocketed millions in bonuses. Apologies for the digression. Where were we? Oh yes, I was going to explain the other reason that I hope Kickstarter’s founders make a lot of money.

It’s simple: by proving that you can do a LOT of good and actually still make a LOT of money, more people follow that path. I believe this is already happening.

My point is this: do PBCs care about profits? Actually, yes, they do. If they didn’t, they would be a nonprofit. But the fact that they have this duality, a sort of mix of corporation and nonprofit is what gives them the opportunity to create a new wave of social businesses and have a massive impact. Think Warby Parker times a thousand. That’s pretty exciting.

But isn’t officializing benefit corporation status a huge administrative burden?

The short answer is No. Nowadays, incorporating as a PBC is really no more difficult than doing so as a regular corporation (C-Corp). Re-incorporating from a C-Corp to a PBC is more involved. I haven’t been through that process so cannot speak about it first hand but my sense from companies like Kickstarter is that it is completely manageable.

So why would a company decide to set up as a Public Benefit Corporation?

I am going to assume that a company facing this question has already decided that it wants to have a social mission in some form (a much bigger existential question).

Of course, if you want your company to do good, it doesn’t have to have any particular legal status. The good you do comes through your actions, not some words scribbled on a piece of paper.

That being said, if you really believe in your social mission and it’s a core part of your company, you should go the PBC way. Rather than give all the pros and cons at this point, I’ll share why we decided to do so with our company.

When we set out to start a company, we knew we wanted it to be more than just a profit-generating vehicle. It would be a whole other article to explain our philosophical beliefs and the stories in our lives that brought us to this point but I can summarize the conclusion like this: at the end of the day, we didn’t want to work for a company that measured success purely in terms of profit.

Once we took that decision, and then figured out what our social mission* would be, the thought process was straightforward: if you’re willing to go through extra steps to show you’re doing something well, you’re probably pretty serious about it. The reverse of that statement is that if we don’t formally outline our status through PBC status but claim to have a social mission, people could rightly ask why we don’t. Lazy? Not 100% sure that we want to be ‘good guys’ forever? More importantly, having that status sends a message that we’re dead serious about it; to investors, to customers, to employees, to suppliers, and to our community. And it allows us to make it a perduring core of the company rather than an optional part that can be added or removed at any time.

It’s especially important for future employees, because we want people who work with us to care about the fact that we’re a PBC. In a way, it’s also a recruiting filter to weed out people that wouldn’t be a cultural fit.

Unintended benefits

While our social mission is at the core of our company and our personal philosophies, we never saw it as our primary marketing message to consumers (you’ll notice you have to scroll down this page quite a way before we mention it). The reason for that is simple: people don’t buy scented candles because of their maker’s social mission; they buy them because they are good scented candles. On that front, being a PBC is just a nice secondary or tertiary consideration.

However, what we didn’t expect was how much more willing various people would be to help us as a result of our PBC status, whether it was offering us services at a way lower price than they otherwise would, giving us access to event spaces for free, etc. When you think about it, it makes sense. People feel more sympathy towards people or institutions that “do good” than those that are just acting in their self-interest. Even in the tough world of business, goodwill goes a long way.

Don’t sell out your values, don’t sell out your community, don’t sell out the long term for the short term. Do something because you believe it’s wonderful and beneficial, not to get rich. — Yancey Strickler, CEO of Kickstarter

Bottom line: if you’re starting a company and you care about the world around you, go PBC

PBCs don’t have to have an additional charitable mission like Keap does; they can simply be companies that make particular efforts to be good to their employees, communities and consumers.

So if you want to build something that leaves a meaningful mark, attract thoughtful employees, and work in an environment where everyone wants you to succeed, be a leader and use that Public Benefit Corporation form instead of the regular C-Corp one.

Your turn: What do you think lies in store for the public benefit corporation status? Has anyone had a negative experience starting or switching to PBC status?

*Keap’s social mission: to bring access to sustainable light to communities off the electrical grid (done with our charity partners SolarAid)

About me: I’m the founder of Brooklyn-based startup Keap, where we’re making an exceptional range of candles at a decidedly fair price — all while bringing access to sustainable light to remote communities. We incorporated as a Delaware public benefit corporation in April 2015.

Harry Doull

Written by

Founder of Keap Candles, a Brooklyn-based Certified B Corporation making master perfumer candles with a regenerative approach.

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