Say ‘Ello’ to Public Benefit Corporations

October 27, 2014

On October 23, 2014, Ello, the burgeoning social network, announced that it converted to a Public Benefit Corporation. Ello describes itself as “a simple, beautiful, and ad-free social network created by a small group of artists and designers.” Ello’s business model appears to fly in the face of the current market trend of monetizing social networks – through the sales of advertising and user data.

In its press release, the founders and investors of Ello said “[t]o assure in the strongest possible way that Ello stays focused on its mission to be a different kind of social network, Ello has converted to a State of Delaware Public Benefit Corporation (PBC). A PBC is a special for-profit company in the USA that operates to produce a benefit for society as a whole. As a PBC, Ello is legally obligated to take its impact on society into account in every decision it makes.”

While Ello used Delaware law to convert to a Public Benefit Corporation, Pennsylvania amended its Business Corporation Law to provide the Benefit Corporation option for local companies effective as of January 23, 2013. In Pennsylvania, a Benefit Corporation shall have a purpose of creating a general public benefit, which means a “material positive impact on society and the environment, taken as a whole and assessed against a third-party standard, from the business and operations of a benefit corporation.” 15 Pa.C.S.A. Section 3302. A Benefit Corporation may also commit to specific public benefit purposes, including:

(1) providing low-income or underserved individuals or communities with beneficial products or services;

(2) promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;

(3) preserving the environment;

(4) improving human health;

(5) promoting the arts, sciences or advancement of knowledge;

(6) promoting economic development through support of initiatives that increase access to capital for emerging and growing technology enterprises, facilitate the transfer and commercial adoption of new technologies, provide technical and business support to emerging and growing technology enterprises or form support partnerships that support those objectives;

(7) increasing the flow of capital to entities with a public benefit purpose; and

(8) the accomplishment of any other particular benefit for society or the environment.

Pennsylvania Benefit Corporations may be formed as a new entity, or an existing business corporation may convert to a Benefit Corporation.  The Benefit Corporation bridges the gap between nonprofit corporations and domestic business corporations and is a way to publicly display a for-profit business entity’s commitment to one or more of the above public benefits. Although there are no tax benefits as there would be with a nonprofit, a for-profit Benefit Corporation has a publicly-stated, legally-binding commitment to providing one or more benefits to society and does not solely consider maximizing value for shareholders as its sole purpose.  It enables the corporation to ensure it holds itself accountable to its desire to make a positive impact on society and it could play an important role in branding the company for marketing purposes. 

Matt Landis is an attorney at Russell, Krafft & Gruber, LLP, in Lancaster, Pennsylvania. He received his law degree from Widener University and practices in a variety of areas.