Business / Communities / Legal

This is the ‘most dynamic shift’ in corporate law since the LLC

Recent amendments to Delaware's public benefit corporation law could have monumental societal impacts. CT Corporation's Jason Erb explains.

Gov. Jack Markell. (Photo by Flickr user Jeffrey, used under a Creative Commons license)

Earlier this month, amendments were officially made to the Delaware General Corporation Law that ultimately make it easier for existing corporations to legally adopt a social mission by becoming a Benefit Corporation.
Sounds like something a corporation shouldn’t have to jump through hoops to be able to accomplish, right?
As it turns out, those hoops existed as recently as three weeks ago, when three major amendments to the Delaware General Corporation Law, approved by Gov. Jack Markell, removed three of the most daunting hoops holding corporations back from becoming socially conscious.
Up until Aug. 1, any kind of alteration to a company’s charter would first have to be approved by shareholders. The amendments reduced the super majority vote from 90 percent approval from shareholders down to 66 percent.

New York could do it, California could make these changes, but you really need Delaware to make the changes for anything to happen.

“That was a very high vote to get anything passed,” said CT Corporation Director of Strategic Alliances for Small Business Jason Erb. Erb’s job with the 122-year-old company is to help entrepreneurs build their businesses through partnerships with a focus on compliance and governance.
“Basically, you couldn’t get anything passed to change to a benefit corporation,” Erb said.
The second change to the law is as simple as making changes to the name of the company. According to Erb, the requirement of companies to use “PBC” in their name was a big concern.
“When you’re a publicly traded company in Delaware, you’ve got thousands of entities out there across the country,” he said. “You’re not just formed in Delaware — you’ve qualified your business under different names all across the country, all across the world. That actually becomes a giant task to change, and not easy.”
The third is the big one: the appraisal rights of shareholders in a publicly traded corporation.
“It basically enabled the Board to look at the concept of chartering the organization in a particular way that helps the general public by not eliminating the concept of always having to make a profit, that margins are positive for the shareholders interest.”
So, why is this a big deal for Delaware? Because approximately 64 percent of Fortune 500 firms are registered in the state.
“New York could do it, California could make these changes, but you really need Delaware to make the changes for anything to happen,” said Erb. “When Delaware adopts something and falls in line with other states like California, then you have something.”
According to Erb, Delaware is generally slower to embrace trends to corporate law change — and rightfully so.
I actually think this is going to be the most dynamic shift in corporate law since the formation of the LLC.

“The majority of shareholders in the world are governed by Delaware corporate law,” Erb said. “It’s not the easiest thing to change something when you have that much of a majority. A lot of other states have tried other company designations and Delaware tends to kind of want to see what’s going to come out of it first.”
Now that the changes have been made in Delaware, the potential results are significant, to say the least. The focus can now shift on a national (if not global) level from positively impacting shareholders’ wallets to positively impacting society.
“I actually think this is going to be the most dynamic shift in corporate law since the formation of the LLC,” said Erb. “That’s the dynamic shift that can occur when you say, we’re actually going to create this company with a charter saying we’re going to do good in the community, we’re going to help the community, care about our employees, the products have to be safe, they have to be certified this way — and we’re going to stand by that.”

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