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Texas Authorizes Public Benefit Corporations

Texas Authorizes Public Benefit Corporations

It is safe to say that all shareholders want their corporations to make a profit. There are also shareholders who want their corporations to make a positive contribution to society. This second group (sometimes referred to as social entrepreneurs ) are okay with management making decisions that put the best interests of society—or the employees, consumers, or environment—above their own profit-making interests. However, in the typical for-profit corporation, putting the interests of non-shareholder constituents first could be considered a breach of management’s fiduciary duties.

This dilemma for management led to the creation of new types of corporations—ones with the dual purposes of making a profit and creating a benefit to society—called public benefit corporations. More than 30 states authorize at least one of these types of corporations. Previously, Texas was not one of them. But on September 1, Texas joined the list when its corporation law was amended to authorize public benefit corporations.

Below is a brief look at some of the Texas public benefit corporation provisions, which are found in the Texas Business Organizations Code, Chapter 21, Subchapter S, Secs. 21.951 to 21.959.

Formation

A Texas public benefit corporation may be newly formed in the same manner as a regular for-profit corporation except that its certificate of formation must include one or more specific public benefits to be promoted by the corporation and a statement that it is a for-profit corporation electing to be a public benefit corporation. (Sec. 3.007) It is subject to all the provisions applicable to regular for-profit corporations except for those that might conflict with a provision of Subchapter S.

Election of Public Benefit Corporation Status

An existing for-profit corporation may become a public benefit corporation by amending its certificate of formation to comply with the requirements of Sec. 3.007, or by entering into a merger or interest exchange with another entity where the resulting entity is a public benefit corporation. The approval of the owners of two-thirds of the outstanding shares entitled to vote on the matter is required. (Sec. 21.954(a))

A domestic entity other than a for-profit corporation can become a Texas public benefit corporation via a merger, interest exchange, or conversion. The approval of the owners of two-thirds of the outstanding interests entitled to vote on the matter is required. (Sec. 21.954(c))

Name

The name of the public benefit corporation may, but is not required to, contain the words “public benefit corporation”, the abbreviation “P.B.C.” or the designation “PBC”.

Purpose

A Texas public benefit corporation is intended to produce a public benefit and to operate in a responsible and sustainable manner. “Public benefit” means a positive effect, or a reduction of a negative effect, on one or more categories of persons, entities, communities or interests, other than shareholders in their capacities as shareholders, including effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technological nature. (Sec. 21.952)

Duties of Directors

The board of directors is required to manage the public benefit corporation in a manner that balances the shareholder’s pecuniary interests, the best interests of those persons materially affected by the corporation’s conduct, and the public benefit or benefits specified in its certificate of formation. (Sec. 21.956)

Periodic Statements

A public benefit corporation is required to provide its shareholders, at least biennially, with a statement pertaining to the promotion of its public benefit and the promotion of the best interests of those materially affected by its conduct. (Sec. 21.957)

Conclusion

The Texas public benefit corporation is an entity that should be of interest to Texans looking to start or invest in socially conscious businesses and lawyers with Texas clients who have both profit-making and socially conscious goals. For assistance in forming a new public benefit corporation or filing the documents for an existing entity to become a public benefit corporation contact your CT representative.

 

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