Kickstarter, the well-known crowdfunding website, recently made news by announcing that it has become a Delaware “public benefit corporation” under that state’s new (2013) PBC statute. For example, a New York Times headline on September 21st declared that “Kickstarter Focuses Its Mission on Altruism Over Profit,” which certainly sounds impressive. The Times article went on to quote Kickstarter’s CEO, Yancy Strickler, as saying,
“We don’t ever want to sell or go public. That would push the company to make choices that we don’t think are in the best interests of the company.”
For many readers, this begs the following question: What is a public benefit corporation anyway?
Summary of Delaware’s statute…
Sections 361 through 368 of the Delaware General Corporation Law allow the formation of for-profit corporations that are “intended to produce a public benefit…and to operate in a responsible and sustainable manner.” Here are the key components of a Delaware PBC:
- The certificate of incorporation must identify the public benefit(s) being advanced.
- “Public benefit” is broadly defined to mean “a positive effect (or reduction of negative effect) on 1 or more categories of persons, entities, communities or interests…including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.”
- Directors are required to balance “the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit…identified in its certificate of incorporation.”
- The PBC must provide a report to its stockholders biennially that discusses the manner in which it has promoted its specified public benefits and the impact on its various stakeholders.
- PBC directors do not have fiduciary duties to non-stockholders.
- Either (a) the corporation’s name must include “Public Benefit Corporation,” “P.B.C.” or “PBC,” or (b) the corporation must give notice to each stockholder that it is a PBC.
- A change to PBC status or elimination of PBC status requires the affirmative vote of two thirds of the corporation’s stockholders.
Response to Delaware’s new designation…
Despite the altruistic appeal of the designation, there has not yet been a flood of PBCs. In fact, the number of such corporations in Delaware at this time can be measured in the dozens, though it is worth noting that many other states have adopted similar statutes and the numbers are increasing over time.
Obviously, a PBC designation may make it more difficult to attract traditional investors who are focused solely on the pecuniary value of their investment. It is possible, however, that as the concept takes hold, a significant sub-group of investors may emerge to provide capital to such companies. And while the statute does not preclude a publicly held PBC, we are unlikely to see one anytime soon. Nevertheless, Kickstarter’s announcement and the new Delaware law make for interesting reading.