With the rise of public consciousness regarding sustainability and corporate responsibility, more business owners are looking for ways to further their mission and business with an eye for the future. The state of Delaware has long been a leader in corporate governance so it’s no surprise that they’ve adapted to the times by adding an entity type to meet the needs of the modern business owner.
Public Benefit LLCs have been codified into law, allowing business owners to form this new entity type and meet the evolving expectations of the conscientious consumer.
What is a Public Benefit LLC
A Public Benefit LLC is a new entity type in the state of Delaware (and several other states) that exists as a for-profit company that is intended to produce a public benefit or benefits and to operate in a responsible and sustainable manner.
What Constitutes a Public Benefit
The state of Delaware defines a public benefit as:
“A positive effect (or reduction of negative effects) on 1 or more categories of persons, entities, communities or interests (other than members in their capacities as members) including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.”
What are the advantages of a public benefit LLC?
Today’s consumer is often looking to spend their money in a more conscientious, targeted manner. Brands and businesses with a well-marketed public benefit may see increased customer loyalty and goodwill over traditional LLCs.
Additionally, having a third clause included within the articles of formation stating the specific public benefit purpose puts in place a more formal system of checks and balances to maintain the business’s commitment to a specific cause.
The Difference Between a Non-Profit and a Public Benefit LLC
Put simply, a public benefit LLC is a for-profit business. The goal of the business is typically to make a profit while furthering a specific cause.
Non-profit businesses raise money to further their mission but do not make a profit that is then distributed to it's members, directors or officers.
How are Public Benefit LLCs viewed at the federal level?
Federally, Public Benefit LLCs are viewed as LLCs. Federal guidelines do not discern between public benefit LLCs and LLCs.
Tax differences for a Public Benefit LLC
Public Benefit LLCs are taxed the same way that traditional LLCs are taxed. LLCs are pass through entities, meaning the profits of the LLC are claimed on the personal income taxes of the members.
Can an LLC become a Public Benefit LLC?
If an LLC is not formed as a statutory public benefit LLC, it may become a statutory public benefit limited liability company by amending its company agreement and certificate of formation.
You can learn more about amending your LLC operating agreement here.
Ongoing Requirements of a Public Benefit LLC
While traditional LLCs are not required to produce any type of annual report or notice, Public Benefit LLCs must provide a statement biennially to its members.
The statement must include the objectives of the public benefit, standards that have been adopted to measure progress, objective, factual information based on those standards in regard to meeting those objectives, and an assessment of the companies success in meeting the objectives.
Not every business needs to have a stated public benefit in order to give back or have an impact in their community. That said, Delaware is once again at the forefront of meeting the needs of business owners with the addition of public benefit LLCs as a legal entity type.
If you are interested in forming a public benefit LLC, you can place an order here and The Incorporators will form your new entity. If you have any questions, feel free to give us a call at 800-223-3928.