Delaware Authorizes Public Benefit Corporations: Will the First State Be the First to Benefit Healthcare Organizations?

BNA Health Law Reporter

Katherine R. Lofft, a Member of the Firm in the Corporate Services and Health Care and Life Sciences practices in the Washington, DC, office, Purvi B. Manier, a Member of the Firm in the Health Care and Life Sciences and Corporate Services practices, in the firm's New York office, and Marshall E. Jackson, Jr., an Associate in the Health Care and Life Sciences practice, in the Washington, DC, office, wrote an article titled "Delaware Authorizes Public Benefit Corporations: Will the First State Be the First to Benefit Healthcare Organizations?"

Following is an excerpt:

Last year, Delaware became the 19th state, along with the District of Columbia, to authorize the formation of benefit corporations (known in Delaware as ‘‘public benefit corporations''). The legislation authorizing the formation of benefit corporations has, in many states, been inspired by the provisions of the Model Benefit Corporation Legislation (the ‘‘Model Legislation''). However, Delaware has taken a different approach, and its public benefit corporation statute varies in some key respects from the Model Legislation.

The authorization of benefit corporations in the form adopted by the First State is of significance, given Delaware's prime place in the world of corporate formation and governance. Moreover, given the variations in the Delaware public benefit corporation model as compared to the form of benefit corporation under the Model Legislation, Delaware's public benefit corporation model is likely to be better suited to adoption by healthcare and life science companies than the benefit corporation models currently available in other states.

A benefit corporation is a relatively new form of organization that combines certain attributes of both a traditional for-profit or business corporation and a nonprofit corporation. This hybrid form of organization enables like-minded investors to pursue a corporate purpose that transcends the maximization of shareholder profit. Unlike a traditional for profit corporation, a benefit corporation can pursue a public benefit even if it does not coincide with the goal of profit maximization. An advantage of being a benefit corporation rather than a traditional non-profit corporation is that the benefit corporation is not limited in raising investment capital and distributing profits to its investors.