Incorporating your business as a Public Benefit Corporation (PBC) means you can include public good as part of your company charter in addition to maximizing shareholder profit. Today, there are almost 4,000 Public Benefit Corporations (PBCs) across the U.S., including well-known brands such as Patagonia, Kickstarter, and This American Life. This corporate structure exists across 31 U.S. states, with California introducing the option just five years ago, allowing businesses to focus on both profits and benefits for society. And startups are increasingly showing interest in this business structure.
We’ve witnessed the growth of PBCs first-hand. In fact, six of the 38 early-stage companies we’ve incubated are PBCs. Yet, in our experience, many founders do not understand how they actually work. So to set the record straight, we’ve compiled a list of the five most common misconceptions about PBCs.
Myth 1: Public Benefit Corporations and Certified B Corps are the same.
Many entrepreneurs treat the decision to become a PBC and a Certified B Corp as one and the same. However, they are very different creatures.
PBC is a legal incorporation status (like a C Corp or LLC). PBC documentation encourages a corporation to consider the interests of multiple stakeholders (society, workers, the community, and the environment) in addition to shareholders when making decisions.
Certified B Corporation or “B Corp,” on the other hand, is a third-party certification similar to Fair Trade or LEED. B Lab, a non-profit, administers this credential and independently assesses companies based on social and environmental criteria. Companies typically pursue certification because of the additional credibility brought by third-party review.
While some PBCs are not Certified B Corps and vice versa, many are both. Several companies, including Patagonia and AltSchool, hold both labels. It should be noted that if a Certified B Corp goes public, B Lab requires that company to reincorporate as a PBC within two to four years (Etsy, the first Certified B Corp to go public, is dealing with this deadline now).
Myth 2: Public Benefit Corporations are nonprofits.
By definition, all PBCs are for-profit companies. However, nonprofits and PBCs are often confused because their charters both explicitly mention a socially beneficial purpose. Specifically, nonprofits are driven by a stated “charitable purpose” and PBCs spell out a “public benefit” purpose. In spite of this similar language, nonprofits and PBCs are completely different types of companies. While a nonprofit’s sole mission is pursuing its charitable purpose, PBCs must balance their benefit to the public with the financial objectives of their shareholders.
There are two other key differences. The first is that nonprofits are tax-exempt by the IRS, while…