Learn more about what a Public Benefit Corporation is in business.
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The purpose of most corporations is to generate wealth for their officers and shareholders. While an effective motivation tool, wealth production for a few doesn’t necessarily benefit the public as a whole. Yet one type of corporation tries to generate social and public good and progress society as a whole. That type of corporation is called a public benefit corporation. Although the definition of a public benefit corporation can vary slightly between states, they all attempt to operate in a responsible and sustainable way. Any small business owner with a desire to make a positive change will want to learn more about a public benefit corporation’s definition and benefits.
Merriam-Webster’s definition of a public benefit corporation is “a for-profit corporation whose purpose is to provide a benefit to society (such as improving the environment or promoting good health) in addition to making a profit for shareholders.” There are two types of public benefit corporations (or “PBCs”): governmental and private. Governmental public benefit corporations are created by government entities to provide some kind of free or low-cost service to the public. Private-public benefit corporations (also called “Benefit Corporations” or “B Corps”) are created by individuals or private groups.
Most states now recognize B corps, and some state governments even grant them friendly tax treatment. However, not all states recognize public benefit corporations. At present, 13 states still do not recognize PBCs, but that number is changing. Also, know that the phrase “public benefit corporation” can have a slightly different meaning across various states.
Like any other legal entity in the business world, public benefit corporations have advantages and disadvantages.
PBCs offer an extensive list of benefits. Here are the top advantages:
PBCs combine the best characteristics of corporations and non-profit corporations because they allow investors to gain financially while making the world a better place.
Unfortunately, public benefit corporations are not without their drawbacks. For one, their additional reporting requirements lead to significantly more restrictions and paperwork. And because PBCs are not universally recognized throughout the United States, their reach can be limited. Unlike limited liability companies, public benefit corporations still need to pay state and federal corporate income taxes. Finally, investments made in PBCs are generally not tax-deductible.
Now that we’ve covered the public benefit corporation’s business definition, advantages, and disadvantages, let’s review a few real-world examples.
Kickstarter first became a business in 2009. However, it reformed as a public benefit corporation in 2015. Aside from making money, it uses its status as a B Corp to provide easy crowdfunding capital and “help bring creative projects to life.”
Like Kickstarter, Patagonia was originally not a PBC. That said, it became a B corporation in 2012 and earned the distinction of being the first B corporation in California. Thanks to its unique corporate structure, Patagonia aims to be carbon neutral by 2025. It also donates 1% of all of its sales to help restore the environment.
Although it’s a subsidiary of Unilever, Ben & Jerry’s is itself a certified B corporation. In addition to making ice cream that is famous across the world, the company focuses on several social goals. These goals include reducing social inequality, minimizing negative effects on the environment, and using sustainable food production methods.
Public benefit corporations are a type of legal commercial entity that allow their owners to make a profit and further the public good.
Public benefit corporations are truly an exciting new option for business owners. But becoming one can take time and patience. Trust us. As a public benefit corporation ourselves, we know what it takes.
Thanks to our status as a PBC, we can carry out our mission of supporting small business owners. In addition to giving out over $100,000 in grants to small businesses in 2020 alone, we also have a wide selection of products and services to help business owners. Want a hand forming your own business? Let us get you started with our business formation services. Are you looking for an easy way to monitor your business’s finances? With ZenBusiness Money, we can get you connected with all your company’s profits and expenses in no time. Or maybe you need help discovering which licenses and permits you need to get for your company? With our partners at Avalara, we can give you all the information you need. We’ll give you a custom report that shows you all the licenses and permits that you need for your business.
Whatever your business needs, we can help make running a business easier. That’s why we’re here. Let us give you a hand up with your company and help make the world a better place.
Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.