Ah, Labour Day: a day to watch some football, gear up for the first day of school and catch up on recent developments in Delaware corporate law!
For those readers who are not corporate law aficionados, Delaware is sort of like the New York Yankees of corporate law: a lot of companies choose to incorporate there, what Delaware does affects other jurisdictions and, love it or hate it, everyone pays attention to what’s happening there.
So, it is significant that on August 1, 2013, Delaware became the nineteenth US state to enact legislation concerning “public benefit corporations”. As the name suggests, public benefit corporations are corporations that expressly commit to provide a “public benefit”, as specified in the articles of incorporation, and to “operate in a responsible and sustainable manner”, as well as make money for shareholders. “Public benefit” is defined as a “positive effect (or reduction of negative effects) on 1 or more categories of persons, entities, communities or interests (other than stockholders in their capacities as stockholders)”. The boards of directors of public benefit corporations must balance the financial interests of shareholders, “the best interests of those materially affected by the corporation’s conduct” and the public benefit specified in the articles. For a helpful summary of this and other recent amendments to Delaware corporate law, see here.I see two troubling implications of creating a separate category of public benefit corporations. First, I have a problem with the implication that regular vanilla corporations do not provide a public benefit. The generally accepted justification for the separate legal personality of corporations and the limited liability of shareholders is the public benefits that flow from facilitating investment in for-profit business enterprises. Apart from creating employment and products and services people need and want, corporations' profitable endeavours also make artistic, cultural, educational, environmental and technological contributions - the types of public benefits listed in the statute. Second, I have a problem with the implication that regular vanilla corporations are not, or ought not to be, run in a “responsible and sustainable manner”. By implying that only designated corporations provide a public benefit and that only designated corporations need to be responsible and sustainable, public benefit corporations could undermine both the legitimacy of the corporate form and efforts to make all corporations more responsible for their negative social impacts.