Texas Public Benefit Corporations: Forming a Business with a Mission

Combining profit with purpose is the idea behind Public Benefit Corporations (PBCs). Texas joined many other states in allowing this type of entity in 2017. A Public Benefit Corporation is a for-profit corporation that is legally empowered (and required) to pursue a public benefit in addition to profits. Here’s what that means and how you can form one in Texas:

1. The Concept of a Public Benefit Corporation: Traditionally, corporate directors must make decisions in the best interest of shareholders (typically meaning maximizing profits). A PBC modifies this rule by mandating that directors balance shareholders’ financial interests with the specific public benefit(s) identified in the company’s charter, and the best interests of those materially affected by the corporation’s conduct. In other words, a PBC is committed to a mission beyond just profit. Public benefits can be broad (e.g., “a positive effect on the environment”) or specific (e.g., providing free educational resources to underprivileged communities).

2. Texas Law on PBCs: Texas law (Texas Business Organizations Code, Chapter 21, Subchapter O) allows corporations to elect public benefit status. The law became effective on September 1, 2017, making such incorporations possible. A Texas PBC is treated mostly like a traditional for-profit corporation, but with some extra requirements:

• The Certificate of Formation must state that the corporation is a Public Benefit Corporation.
• It must include one or more specific public benefits the corporation will aim to provide.
• The name of the corporation may, but is not required to, contain an indication of its PBC status (unlike some states, Texas does not mandate a special suffix in the name).
• Directors of a PBC are required by law to balance the stated public benefit, the interests of shareholders, and other factors – giving them legal protection to prioritize mission as well as profit.

3. Forming a PBC in Texas: The formation process is similar to a standard corporation with a few extra steps:

• Prepare the Certificate of Formation: Use Form 201 (for-profit corporation) or the Texas online filing system, and include the PBC-specific provisions. You’ll need to explicitly declare that the corporation is a Public Benefit Corporation and state the general or specific public benefit(s) it will pursue. For example, you might write: “This corporation is a public benefit corporation governed by Subchapter O of Chapter 21 of the Texas Business Organizations Code. The public purpose of the corporation is to create a positive impact on environmental conservation and sustainability.”
• Initial Directors and Structure: Appoint your board of directors as usual. You can structure the PBC with shareholders, a board, and officers just like a normal corporation. Being a PBC doesn’t change corporate structure, only the purpose and duties.
• Filing: File the Certificate with the Texas Secretary of State and pay the normal filing fee ($300). Once filed, the corporation is officially a Texas PBC.

4. Ongoing Obligations: Texas PBCs must provide to shareholders a statement that they are a public benefit corporation on stock certificates or notices. They are also typically expected to produce a regular benefit report (at least every two years) evaluating how well they’re meeting their public benefit goals. The Texas statute requires PBCs to send shareholders a report on the corporation’s promotion of its public benefits. This report can help keep the company accountable and transparent about its mission progress (though unlike a few other states, Texas does not require filing the report with the state – it’s an internal/shareholder requirement).

5. Advantages and Considerations:

• Attracting Certain Investors/Employees: As a PBC, you may appeal to impact investors and employees who value the mission. It sends a strong signal that your company is serious about its social or environmental goals (since it’s baked into your legal DNA).
• Accountability: The legal structure ensures that mission stays in the conversation at the board level. Directors won’t be liable simply for considering non-financial interests (as they might be in a regular corporation if profits were arguably reduced).
• Flexibility vs. Scrutiny: Keep in mind that as a PBC, you will be judged on your public benefit, so transparency is key. You might choose to voluntarily seek B Corporation certification (a third-party certification by B Lab) to further validate your performance, but that’s separate from the legal status.
• No Tax Difference: Being a PBC in Texas does not on its own grant any tax exemption (it’s still a for-profit entity). It also doesn’t change franchise tax obligations or other filings – you still file taxes like any other corporation.

Forming a Texas Public Benefit Corporation is ideal for entrepreneurs who want to bake a specific mission into their company’s core. It provides a balance of profitability and responsibility, backed by legal provisions.

If you’re interested in forming a Public Benefit Corporation in Texas, ensure you draft your formation documents carefully to include all required language. It may be wise to consult an attorney familiar with PBC requirements. For any assistance in navigating this process or advice on whether a PBC fits your goals, contact us. We’re happy to help you launch a business that aims to make both money and a difference.