Thoughts on the Proposed Delaware Benefit Corporation Law

At, Professor Haskell Murray discusses proposed changes to the Delaware General Corporation Law that would allow the creation of benefit corporations under Delaware law.

Benefit corporations are a relatively new corporate form that has been adopted in a handful of states.  They are for-profit enterprises whose directors are permitted (and required) to consider social benefit (for example, social welfare or environmental considerations) in addition to profit in their decisions. Many benefit corporation statutes, including the Model Legislation adopted by some states, have been criticized for (among other things) their vagueness as to the duties of directors and other corporate managers vis a vis shareholders and the general public.  As Murray notes: 

The Model requires directors to “consider” seven different stakeholder groups (§301(a)), and directs them to pursue “general public benefit” but does not provide any priorities to guide directors. (§§102, 201(a)).  The Model allows companies to choose one of more “specific public benefit purposes,” in addition to the “general public benefit purpose,” but does not require that any specific public benefit purpose be chosen. (§201(b)).

Murray praises the proposed Delaware legislation for requiring the identification of specific public considerations:

In contrast, Delaware’s proposal does require public benefit corporations (“PBCs”) to choose one or more specific public benefits (§362(a)), though the statute is not crystal clear on priorities and requires directors to “manage or direct the business and affairs of the public benefit corporation in a manner that balances [1] the pecuniary interests of the stockholders, [2] the best interests of those materially affected by the corporation’s conduct, and [3] the specific public benefit or public benefits identified in its certificate of incorporation.” (§365(a)) (emphasis added).   (As a side note, the PBC’s requirement to “balance” the stakeholder interests seems more onerous than the Model’s requirement to “consider” the interests.)

However, the professor notes (as have many Delaware practitioners) that the proposal is still flawed because it fails to clearly define priorities for the directors (specifically, to prioritize between the directors' duty to maximize shareholder utility and their duty to advance the social benefit for which the corporation was intended).

It will be very interesting to see how this field of law develops in the years to come.