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Nathaniel J. Stuhlmiller, left, and Ryan A. Salem, right, of Richards Layton & Finger. Courtesy photos Nathaniel J. Stuhlmiller, left, and Ryan A. Salem, right, of Richards Layton & Finger. Courtesy photos

On Aug. 1, 2013, a new subchapter of the Delaware General Corporation Law (the DGCL) was added to enable Delaware for-profit corporations to be incorporated as or to become a Delaware public benefit corporation, or “PBC.” Rather than being operated solely to maximize value for stockholders, like traditional corporations, PBCs are required to be managed in a manner that balances the interests of three constituencies: the stockholders’ pecuniary interests, the best interests of those materially affected by the corporation’s conduct, and a specific public benefit identified in the certificate of incorporation. See, 8 Del. C. Sections 361-368. After a few years of experience with PBCs, and with interest in sustainability and corporate environmental and social responsibility on the rise, many of the statutory barriers relating to PBCs have been reduced or eliminated, making it easier for existing Delaware corporations to become PBCs.

The most recent amendments to the DGCL provisions relating to PBCs became effective July 16, 2020. These amendments, among other things, reduced the required stockholder vote to become a PBC from two-thirds of the corporation’s outstanding stock entitled to vote thereon to a majority of the outstanding stock entitled to vote thereon, eliminated appraisal rights resulting from an amendment of a certificate of incorporation that converts a conventional corporation to a PBC, made clear that stock ownership by a director will not, in and of itself, create a conflict of interest for that director with respect to his/her obligation to balance the interests of the various constituencies, and added that, absent a conflict of interest, a director’s failure to comport with his/her balancing obligations will not, for purposes of the indemnification and exculpation provisions of the DGCL, constitute an act or omission not in good faith, or a breach of the duty of loyalty. Since the effectiveness of the 2020 amendments, the number of PBCs has increased significantly. As of Jan. 26, 2018, 1,194 PBCs were incorporated in Delaware; following the 2020 amendments, the number increased to 2,860 by Oct. 28, 2020, and further increased to 3,320 by Feb. 10, 2021.

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