Since it was first established by Delaware in August 2018, the public benefit limited liability company (PBLLC) has been growing in popularity.
It may be an option to consider if you’re thinking of formation in a state that allows for PBLLCs.
What is a Public Benefit Limited Liability Company?
A PBLLC is a for-profit limited liability entity intended to promote a general or specific social public benefit. To date, the following five states have adopted this relatively new entity type:
Unlike a regular LLC, a PBLLC has additional statutory requirements to be transparent, accountable and uphold its public benefit purpose while maintaining its fiduciary duties. This means a PBLLC needs to take steps like adopting an independent, third-party standard to assess its performance, disclosing conflicts of interest and providing its members with information on whether the PBLLC met its public benefit objectives.
While PBLLC statutes may vary in specificity, all of them address matters such as the PBLLC’s purpose, formation, third party assessments, annual benefit report requirements, transparency, and accountability. States generally indicate that their PBLLC statutes work in conjunction with existing LLC statutes. If there are inconsistencies, then the specific PBLLC statutes supersede.
Forming a Public Benefit LLC
A PBLLC has the flexibility and formation process of a regular LLC. However, the Certificate of Formation must indicate that it is a PBLLC and provide one or more public benefits that it will promote – which cannot be easily changed.
Once formed, a PBLLC must adhere to annual or periodic entity report and annual benefit report requirements to maintain its status.
Annual Benefit Report Requirements
For transparency reasons, PBLLCs are required to provide annual benefit reports. With the exception of Delaware, PBLLCs must publicly post their annual benefit reports and deliver them to the members. (Delaware requires providing a statement to the entity members, which does not need to be filed or publicly posted.) Typically, companies post their annual benefit reports on their websites. If a PBLLC does not have a website – highly unlikely in this day and age – the entity must provide copies of the reports when requested.
State statutes provide specifics on when the annual benefit report should be posted and delivered and what information it should contain. For example, financial and/or proprietary information does not need to be posted. On the other hand, the benefit report must provide objectives established to promote the stated public benefits, the third-party standards used to assess the entity’s progress and whether the entity met the set objectives.
Pennsylvania and Utah also require filing annual benefits reports with state departments. In Pennsylvania, the annual benefit report must be filed within 120 days following the end of the entity's fiscal year or “at the same time that the benefit company delivers any other annual report to its members”. The state provides annual benefit report forms and charges a filing fee.
A PBLLC in Utah must file the annual benefit report, in conjunction with the standard annual entity report notice, within five days of delivering the annual benefit report to its members. There is no filing fee for the annual benefit report and the PBLLC can draft its own annual benefit report or have it drafted by the third-party assessor. Neither Utah nor Pennsylvania require the filed annual benefit reports to include financial or proprietary information. However, both require disclosure of any conflict of interest.
State Annual/Periodic Entity Report Requirements
In addition to annual benefit reports, Maryland, Oregon, Pennsylvania and Utah require PBLLCs to file standard periodic entity reports.
While Maryland, Oregon, and Utah require annual entity reports, Pennsylvania requires all LLCs to file a decennial reports. (However, if the PBLLC is up-to-date on its annual benefit report filings in Pennsylvania, it need not file the decennial report).
If you are looking to make a positive social impact, a public benefit LLC may be the option for you to consider. Given the growing trend, it’s only a matter of time before additional states adopt this entity type.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.