Delaware Proposes Historic Benefit Corporation Legislation

The Delaware Bar has just released proposed benefit corporation legislation for Delaware. The Delaware Bar’s embrace of draft benefit corporation legislation signals a seismic, global shift in corporate law. The proposed legislation will create a new corporate form which ensures the pecuniary interests of shareholders while also providing a general public benefit which considers the interests of both society and the environment. Delaware is quietly opening its jurisdiction to 21st century corporations willing to commit to being responsible global citizens. This is the single most significant change in corporate law since New York adopted free incorporation and limited liability of shareholders in 1811 because it endows corporations with the legal architecture to support a planetary conscience that transcends and includes the customary pecuniary one.

Delaware’s pcloseup of hands writingroposed legislation embraces the key elements of the model benefit corporation legislation that has now passed in 12 states, including California and New York, and is under consideration in 17 additional states. The draft legislation provides for an overarching general public benefit obligation, accountability to all stakeholders, and impact transparency. BLab, a key proponent and supporter of the new Delaware corporate form, called a “Public Benefit Corporation”, summarizes the proposed law as follows:

Purpose: Similar to the model legislation, Delaware’s proposal says the company “is intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner.” To that end, the draft requires a corporation to “be managed in a manner that balances the stockholders’ pecuniary interests, the best interests of those materially affected by the corporation’s conduct, and the public benefit or public benefits identified in its certificate of incorporation.” In other words, Delaware goes a step further than the model benefit corporation legislation by requiring a declaration of a specific public benefit or benefits in addition to the general public benefit consideration of all stakeholders.

In the Delaware Bar’s Q&A, they make it emphatically clear that a Delaware public benefit corporation must act toward pursuing overarching public benefit:
“Q. Why does the statute require both the identification of a specific benefit or benefits and that the corporation be managed for the best interests of all those materially affected by the corporation’s conduct?
A. The goal of the legislation is to enable a for-profit entity also to focus on creating societal benefit, notwithstanding some cost to generating pecuniary value. To meet this goal, the legislation requires that directors consider the interests of those materially affected by the corporation’s conduct, not just particular stakeholders.”

Accountability: The Delaware proposal contains the same high standard of accountability that is found in the model legislation. Shareholders have a right of action to enforce the directors’ duties that is very similar to the model benefit corporation legislation.

Transparency: Under the Delaware proposal, a company must produce a public benefit report, no less then biennially, for its shareholders that assesses its impact on all its stakeholders and on the specific benefit(s) it has identified. The legislation specifically contemplates the need to provide greater transparency by providing the option of additionally requiring the report to be issued more frequently, to be transparent to the public, and to use a third party standard to assess the corporation’s activities. On this point, the Delaware proposal is less transparent than the model benefit corporation language because the Delaware proposal does not require that the benefit report use a third party standard, and most importantly does not require that the report be available to the public. However, it begins to provide greater transparency of non-financial performance, and it gives approval to the best practices regarding transparency of impact by clearly offering the option of the higher standards of disclosure found in the model benefit corporation language which may be included in the certificate of incorporation of a Delaware public benefit corporation.

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