From the Harvard Law School Forum on Corporate Governance and Financial Regulation, via Allen M. Terrell, Jr. of Richards, Layton & Finger, comes a summary of proposed amendments to the Delaware General Corporation Law. I had heard about the elimination of the vote in second-step mergers, but the public benefit corporation was news to me.
It sounds a lot like the benefit corporation legislation that's been spreading across the country (see this chart by Haskell Murray. At first blush I was surprised to see Delaware contemplating this kind of social enterprise legislation, since it's not really a stakeholders' rights kinda state. But on further reflection I guess a "let a thousand flowers bloom" attitude makes sense for Delaware's let-the-market-decide, opt-in attitude. Here's the description:
In general, under the proposed legislation, a public benefit corporation would be a corporation managed in a manner that balances the stockholders’ pecuniary interests, the interests of those materially affected by the corporation’s conduct, and one or more public benefits identified in its certificate of incorporation. To this last point, each public benefit corporation would be required, in its certificate of incorporation, to identify itself as a public benefit corporation and to state the public benefits it intends to promote. The proposed legislation generally defines “public benefits” as positive effects (or minimization of negative effects) on persons, entities, communities or interests, including those of an artistic, charitable, cultural, economic, educational, literary, medical, religious, scientific or technological nature. ...
I'm not surprised to see Delaware make this move and I think there's something other than "let the market decide" going on here.
As the leader in corporate law, Delaware has always been quick to adopt new developments so as to preserve its market share. After all, franchise taxes from business organizations are arond 20% of delaware revenues, an income stream the state will do just about anything to maintain. When LLCs became popular, for example, Delaware agressively moved to capture the dominant share of large LLCs.
Thus, as Haskell Murray observed not too long ago (2 Am. U. Bus. L. Rev. 1):
Currently, it is not crystal clear whether Delaware corporate law is flexible enough to give comfort to the social entrepreneur, but as described above, there are a number of other options for the social entrepreneur. Additionally, the Delaware legislature is traditionally extremely responsive to the needs of the market, and one suggested solution in this Article is to have Delaware amend its corporate statute to explicitly provide social entrepreneurs with the flexibility they seek.
And so, once again, we see Delaware hedging its bets. Just as it positioned itself to lead the LLC phenomenon in case LLCs displaced corporations, it is positioning itself to lead the B Corp phenomenon in case it starts to make major inroads on the choice of form.
