Accounting for Public Benefit Companies – What Do You Need to Know?

Blog
May 17, 2021

If you are looking to form a mission driven organization but still retain for-profit status, a Public Benefit Company may be the best option. A Public Benefit Company (PBC) is a corporate form of governance offered by over 30 states. PBCs can take the form of an S Corp or a C Corp, and allow an organization to address social needs or the public good while achieving its primary business goals. Key to establishing a PBC, is to include this dual purpose in the organization’s charter. This dual purpose should allow for growth while also providing guidance for company management, employees, and investors to ensure that decision making is aligned with the stated purpose. In 2010, Maryland became the first state to offer PBC status. If you are considering forming a Public Benefit Company, here are a few guidelines to consider:

  1. A PBC does not require any additional accounting, audit, or financial reporting considerations. However, a PBC may be required to provide benefit reporting to ensure that it is meeting the benefit specified in its charter. For public companies, this may mean including the benefit reporting in the company’s annual report. State rules for benefit reporting differ, but the reporting does not automatically require an outside, independent verification.
  2. Requirements for PBCs differ state by state. Some states require that the term Public Benefit Company be included as part of the name of the organization. Other states may require annual benefit reporting submitted to the state to verify that the company’s mission is supported. Additionally, certain states require benefit reporting to be posted on the company’s website. It is important to understand the requirements of the state you are incorporating in.
  3. Becoming a PBC does not require certification. You may have heard the term “Certified B Corp” which is a third-party certification specifically for a Public Benefit Company. Earning the certification might be beneficial, but it is not always required.
  4. PBC status can be achieved for an existing company by amending its articles of incorporation and a conducting a shareholder vote (a two-thirds minimum is typically required). Additionally, if a Public Benefit Company is sold, it can then relinquish its status.
  5. Public Benefit Companies can raise funds in the private market and also go public. Many private investors are adopting mission focused portfolios and searching for investments that are a potential fit.
  6. Organizing as a Public Benefit Company can strengthen market position, provide exposure for the values of the owners and the organization, and even help attract and retain talent. A Public Benefit Company aligns the mission to the organization in a 360-degree fashion.

 

You might not know but some of your favorite and well-known brands are Public Benefit Corporations, such as including King Arthur Flour, Patagonia, and Kickstarter – and the list is growing. We expect this trend to continue. Please reach out to Aronson with any questions on accounting matters related to PBC’s.