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[null,"Prepared By:","Contributors:"]
[null,"Morrison & Foerster LLP"]
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["Social Enterprise Law Surveys"]
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["Report Generated: 5/2/2025"]
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["View your report results on next tab"]

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["Question","USA, Delaware"]
["I. Enterprise Form"]
["What jurisdiction(s) do you practice in?","United States, Delaware\n"]
["What are the most commonly used types of for-profit corporate organizational forms in your jurisdiction (e.g., corporation, limited liability company, benefit corporation, social purpose corporation, etc.) used by Enterprises operating a trade or business (rather than for investment or holding company purposes)? Please briefly describe these forms. a. Of these, which are the most common for-profit organizational forms used by Enterprises seeking financing from investors and that will have multiple owners? b. Other than organizational forms specifically designed for Social Enterprises (and discussed below under Question 4), which, if any, are the most common for-profit organizational forms used by Social Enterprises?"," The most common for-profit organizational forms utilized in Delaware are the corporation and the limited liability company (“ LLC ”), which are well understood and traditional in nature. In many ways, they are similar, but LLCs can be disregarded for tax purposes, and so are advantageous to Enterprises that declare dividends and distributions, and they are also more flexible in terms of fiduciary duties and describing potential agreements among shareholders as to the company’s future. \n\n \n\t In addition, Delaware has available the Public Benefit Corporation (“ PBC ”) and the Public Benefit LLC (“ PBLLC ”), all of which are designed for Enterprises whose equity holders seek to build a unique, focused, and specifically-chosen mission into their organizational documents, where the company’s management will have obligations to pursue that mission in parallel to their obligation to maximize enterprise value. Generally speaking, these entities operate as modifications of the traditional corporation and LLC forms adopted by the state. \n \n\n   \n\n a. Enterprises that seek financing from investors and will have multiple owners tend to form corporations. It is certainly possible to work with LLCs that have many members and investor backing, but it is less standard.  \n\n b. If not using a PBC or PBCLLC, Social Enterprises often use an LLC, as the LLC form is more flexible in terms of permitted modifications to fiduciary duties and business purposes, such that the members can mutually agree to operate in a manner consistent with their business’s values. \n\n   \n"]
["Do any of your jurisdiction’s traditional organizational forms require or permit the board or managers to consider, balance or prioritize interests other than shareholder value in decision making? What other interests, if any, are they required to or allowed to consider (e.g., interests of employees, customers, the environment, etc.)?"," \n\t Corporations : No requirement. Other considerations are permitted only to the extent they do not detract from shareholder value. It is not clear that shareholder pecuniary interests are always given primacy, especially when considering their long-term interests, they are given primacy in certain contexts (such as in the case of a sale of a corporation). \n\t LLCs : No requirement. Boards may be permitted to consider other factors extent specified in the operating agreement, but certainly, there is no requirement to this effect.  \n \n"]
["Does your jurisdiction have organizational forms specifically designed for Social Enterprises? If so: a. What type(s) of organizational forms are they? b. How do they materially differ from the most closely analogous traditional organizational form? c. What are the main benefits for founders and funders of such organizational forms? d. Are there any restrictions on the use of these organizational forms (such as profit-caps, stakeholder involvement and impact reporting)? If there are, what are they? e. Are there any material differences in timing or costs for forming a Social Enterprise versus a traditional Enterprise? f. How prevalent and well known are Social Enterprise forms?","Yes, the PBC and PBLLC.\nPBC and PBLLC:b. Materially differ from corporations/LLCs because management must consider specified mission (environmental, social, etc.) in addition to shareholder value when making corporate decisions. The special mission must be identified in the organizational documents agreed upon by the shareholders. Mandatory reporting requirements provide some measure of accountability and certainty to investors and strategic partners that the corporation is pursuing a social purpose. Any amendment or elimination of a public benefit specified must be approved by at least 2/3 of the outstanding voting stock.\nc. Main benefit is that management can and must consider factors other than shareholder value, so shareholder profit is not the only guiding factor. This also makes the venture attractive to impact investors.\nd. No such restrictions.\ne. No timing or cost differences (though after formation, there may be cost differential to prepare the reporting).\nf. The SPC form has been around for approximately eight years, the PBC form has been around for approximately seven years, and the PBLLC form has been around for two years. Three Delaware PBCs trade as public companies on NYSE and Nasdaq, suggesting increased market understanding and acceptance of the form.\nCooperative:b. Cooperatives primarily differ from corporations and LLCs in that ownership is very inflexible and not based on investment amount. Cooperatives are defined by seven basic principles: (i) membership is open and voluntary; (ii) control is democratic on a one-member-one-vote basis; (iii) members participate in the financial gains of the entity; (iv) they provide education and training to members; (v) they are autonomous; (vi) they cooperate with other cooperatives; and (vii) concern for community is central.\nc. The main benefit of this form is that it allows for alignment of worker and investor interests and provides favorable tax treatment of member distributions. Additionally, since it is worker owned, controlled, and managed, impact can be a primary consideration in decision making and operations.\nd. There are no such restrictions.\ne. No timing or cost differences.\nf. This form is well known and has been available for quite some time.\n"]
["Are Social Enterprises permitted to be formed and operated as Nonprofits? If so: a. Are Nonprofits that are Social Enterprises treated differently under the law as compared to Nonprofits that are not Social Enterprises, whether from a corporate, tax or other perspective? b. Are there any material benefits of, and/or restrictions on, using a Nonprofit form for Social Enterprises that does not apply to Nonprofits that are not Social Enterprises? c. Is there any type of “hybrid” Nonprofit form that requires less reporting and/or allows for faster formation? If so, please describe the drawbacks of utilizing this form (i.e. fewer tax benefits). d. How prevalent is the use of Nonprofits for Social Enterprises?","Certain Social Enterprises are permitted to be formed and operated as Nonprofits; however, (i) they are not given any special treatment by virtue of being a Nonprofit, (ii) not every type of business venture may be eligible to form as a Nonprofit and (iii) Nonprofits that earn excess profits are subject to tax penalties. Thus, as a practical matter, not all Social Enterprises may form as Nonprofits. Social Enterprises that do organize as Nonprofits enjoy the same tax benefits as other Nonprofits and have the same burdens and restrictions, and there is no lesser reporting or faster formation process for Social Enterprise Nonprofits as compared to other Nonprofits.\nWhere their businesses fall in the category of activity permitted to Nonprofits, it is indeed very prevalent for Social Enterprises to form as Nonprofits.\n"]
["Does your jurisdiction allow for worker-owned Enterprises, such as cooperatives? If so, please describe any material benefits of, and/or restrictions on, using such forms.","N/A\n"]
["Are there unique reporting requirements for Social Enterprises? If there are, please describe them. Please also discuss what government bodies Social Enterprises are required to report to."," If a Social Enterprise decides to organize as a PBC or PBLLC, they will be subject to reporting requirements that are not applicable to traditional corporations, as follows: \n\n \n\t PBC : No less than every two years, a PBC must provide its stockholders with a report on the corporation’s pursuit of its public benefit(s). The report must include (i) the objectives set forth by the corporation’s board of directors to promote the public benefits; (ii) the standards adopted by the board of directors to measure progress in promotion of the public benefit(s); (iii) objective, factual information based on those standards regarding the success of the corporation in meeting its public benefit objectives; and (iv) an assessment of the corporation’s success in meeting its objectives and promoting its enumerated public benefit(s). \n\t PBLLC  : The reporting requirements for the PBLLC are materially the same as those for the PBC. \n \n\n If a Social Enterprise decides to form as a Nonprofit or use one of the traditional Enterprise forms, they would not be subject to any additional reporting requirements by virtue of them being a Social Enterprise. \n"]
["In your jurisdiction, has case law and jurisprudence evolved to address Social Enterprises? If there is meaningful jurisprudence around Social Enterprises, please provide some brief examples.","Since many of the Enterprise forms are new, there is not much case law on point. Many questions – such as what constitutes a public benefit, remain open.\n"]
["Does your jurisdiction have any ESG requirements for Enterprises generally? If it does, please describe.","No.\n"]
["Does your jurisdiction have any ESG requirements specifically for Social Enterprises? If it does, please describe.","PBCs and PBLLCs may choose their mission, which tend to align with certain ESG factors.\n"]
["Does your jurisdiction have any ESG requirements for investors? If it does, please describe.","No.\n"]
["II. Funding"]
["Are any major investor classes (e.g., pension funds, mutual funds, etc.) required to look at ESG issues when making investment decisions in your jurisdiction? a. If they are, please describe the requirements. b. If they are not, are they permitted to consider such factors? c. What other relevant factors do investors tend to consider (aside from profit motive).","No major investor classes are required to look at ESG issues. While investors may be permitted to consider such factors, the state of play is in flux. Many are pushing for increased focus on factors other than profit motive and some guidance has in the past been issued allowing that, but in contrast, US regulators recently proposed a new rule that essentially discourages pension plans from considering environmental, social and governance issues when choosing investments. The proposed rule bars pension fund fiduciaries from investing in ESG vehicles when they understand that the underlying investment strategy is to subordinate return or increase risk for the purpose of non-financial objectives. \nThat said, there are a number of private funds and large institutional investors that do consider ESG issues when making their investment decisions, and there has been a rise in impact funds that use ESG factors as part of an investment assessment process.\n"]
["What kinds of philanthropic funding do Social Enterprises in your jurisdiction commonly receive (e.g., grants, charitable investment, traditional investment)?","Social Enterprises receive grants, charitable investments, and traditional investments. The type of funding typically varies based on the Enterprise form that the Social Enterprise chooses. For example, Social Enterprises formed as Non-profits receive more grants and charitable investments, while Social Enterprises formed as for-profit corporations received more traditional investments. Social Enterprises utilizing one of the special Enterprise forms (i.e. PBC and PBLLC) have more success attracting philanthropic funding from private foundations and Nonprofit Enterprises. \n"]
["How prevalent, if at all, are new for-profit impact investments in your jurisdiction (e.g. traditional instruments with impact terms, new investment instruments, aggregation with philanthropic capital, community based funding, etc.)?","For-profit impact investments have been increasing in the United States and parties are becoming more familiar with them. Many prominent investors are forming specific impact funds (for example, affiliates of SoftBank, which manages the world’s largest venture capital fund, has recently formed the SoftBank Opportunity Fund).\n"]
["What are the types of government funding and support available to Social Enterprises, if any, available in your jurisdiction (e.g., grants, investments, bonds, and guarantees)? a. How difficult is it for Social Enterprises to obtain government funding? b. Is any government funding limited to Enterprises incorporated using Social Enterprise forms?","There is no special government funding specifically available to Social Enterprises as such. Depending on the Enterprise form and industry, government grants, loans, bonds, and guarantees may be available. For example, the U.S. Department of Agriculture has grants available to for-profit small Enterprises.\n"]
["Are there any companies that are formed as a Social Enterprise listed on your jurisdiction’s leading securities exchange(s)?","Yes, Laureate Education is a PBC that is listed on Nasdaq. It became public in 2017 and was the first publicly traded public benefit corporation to pursue an IPO. Two other PBCs with prominent investor backing went public in the summer of 2020.\n"]
["To what extent are publicly traded Enterprises required to disclose ESG related factors in annual reports/public filings in your jurisdiction.","They are not required to disclose ESG factors, though some choose to do so for marketing reasons.\n"]
["How prevalent, if at all, are impact bonds in your jurisdiction?","Impact bonds are utilized at both the federal level and the state level. The impact bonds are more prevalent at the state level than at the federal level, but overall are not very prevalent.\n"]
["In your jurisdiction, are there any restrictions on foreign investments or donations that are unique to Social Enterprises (whether incorporated as for profit entities or as Nonprofits)?","No.\n"]
["Is “crowdfunding” legal in your jurisdiction? Are there rules under applicable securities laws that make it easier for smaller businesses or Social Enterprises to take money from investors that are not sophisticated/accredited/qualified under applicable statutes?","Crowdfunding is legal, allowing small businesses and Social Enterprise to solicit investment from the general public. However, it is not used as a tool by most successful enterprises due to cost, restrictions (including a cap on the maximum investment amount) and ongoing reporting obligations.\n"]
["III. Tax"]
["Are there any tax exemptions that are uniquely available for Social Enterprises? a. Please describe any tax exemptions that are available and whether they are partial or full. b. Are they dependent on the Social Enterprise utilized using a specific organizational form (e.g., for profit vs. Nonprofit form)? c. Please describe any other key requirements of the available tax exemptions (e.g., restrictions on sources or uses of funds, restrictions on commercial activities, etc.).","There are tax exemptions available for Nonprofits generally, but there are no tax exemptions that are uniquely available for Social Enterprises structured using a for-profit organizational form.\nNonprofits (whether or not Social Enterprise) have two key tax exemption provisions, one being that they do not have to pay income tax themselves, and the other being that donors may take deductions on their reported income.\n"]
["Are individuals or other organizations able to provide tax deductible donations to for-profit Social Enterprises? If they are, please describe any restrictions applicable to tax deductible donations?","No.\n"]
["Are there any other tax benefits uniquely available for Social Enterprises? (e.g. deferrals, favorable tax rates, business deductions, etc.)","No.\n"]
["Does your jurisdiction provide for reciprocal recognition of tax-exempt status that has been granted under the law of any other jurisdictions?","No.\n"]
["IV. Governmental Infrastructure"]
["Does your jurisdiction have Regulatory Sandboxes or similar policy frameworks for Social Enterprises? If it does, please describe.","No.\n"]
["What government operational support, resources, training or services, are available for small businesses or Social Enterprises?","There are government grants and loan guarantees available for small businesses. The Small Business Administration, which administers many of these programs as well as much of the COVID-19 relief in the United States, also provides a number of resources such as articles and classes to help small businesses grow and operate.\n"]
["Are there different compliance requirements for different types of Social Enterprises than for traditional Enterprises? Please provide examples if there are.","Yes. PBCs and PBLLCs are required to produce annual reports assessing the company’s performance.  Reports for the PBC and PBLLC do not need to measure the Enterprise’s performance against a third-party standard, although many do. The PBC must provide a report to its stockholders, no less than every two years, describing the Enterprise’s pursuit of its public benefit(s).\n"]
["Is there a dedicated government agency or department that oversees Social Enterprises? If there is, please describe its mandate and effectiveness.","No.\n"]
["Is there a different bankruptcy system available for Social Enterprises?","No.\n"]
["VI. Miscellaneous"]
["What are the average time and filing fees to form an Enterprise in your jurisdiction?","Depending on the current processing times and whether the documents are filed online, in person, or by mail, it can take a couple days to form a legal entity in Delaware, but the state can accelerate that time frame if “rush” fees are paid.\nThe process to become a tax exempt Nonprofit typically takes between 3-12 months as the Internal Revenue Service, a federal agency, must approve the Nonprofit status application. \n"]
["What government or third-party certifications or accreditations, if any, are available for Social Enterprises that allow for access to benefits e.g. funding, beneficial tax status, etc.? Please provide examples and briefly describe them as well as the standards there are to maintain them."," No certifications afford beneficial tax status or other beneficial legal status, but certain certifications may help bolster the Social Enterprise’s social impact claims and provide potential investors and stakeholders with additional information to accurately assess the social impact that the Enterprise makes. \n\n \n\t B Corporation Certification:   This certification is the most prominent, and is provided by B Lab, which is an independent Nonprofit Enterprise. To become a “B corporation” an Enterprise must:\n\n\t \n\t\t take and pass the B Impact Assessment; \n\t\t adopt the B Corporation legal framework, which requires that Enterprises incorporate certain provisions in their charter and governance documents; \n\t\t sign a term sheet agreement with B Lab; and \n\t\t pay certain fees. \n\t \n\t \n \n\n To maintain the certification, B Corporations must pay annual fees and comply with ongoing reporting and compliance requirements. \n\n \n\t Product, Safety and Environmental Certifications:   There are a wide variety of certifications available to Social Enterprises depending on the industry and purposes of the organization. \n \n"]
["Please describe whether, in your opinion, startups and other entrepreneurial Enterprises generally can easily form and flourish in your jurisdiction.","Yes, startups can easily form and flourish in the United States. They have a number of Enterprise forms available to choose from, there are relatively few reporting requirements for private for-profit businesses and incorporation processes are fast, cheap and simple.\n"]
["Please describe whether, in your opinion, Social Enterprises, in particular, can easily form and flourish in your jurisdiction.","Social Enterprises can form relatively easily if they want to organize as a for-profit Enterprise, but must go through a relatively lengthy application process if they want to form as a Nonprofit and take advantage of the tax benefits. One hard issue many Social Enterprises face is the simple choice of whether to be a for-profit or Nonprofit, particularly as there is no form of Nonprofit that is modified to accommodate Social Enterprises.\n"]
["Please describe whether in your opinion there are any laws that are obstructive to the formation of Social Enterprises (i.e. that actively disfavor or penalize, or otherwise discourage their formation) in your jurisdiction (for example, are Social Enterprises subject to legislation prohibiting inclusion of Social Enterprises in government contract procurement)?","In the general corporate form, directors and officers must use their powers in the best interests of the company and shareholders. While they are not prevented from considering other interests, such as the environment or the larger community, it would be better were they more easily able to consider those interests.\nIn addition, the proposed rules for investment funds that discourage “impact” investing in Social Enterprises that do not prioritize financial return for investors is obstructive to Social Enterprises, in that without funding, Social Enterprises cannot flourish.\n"]
["In your jurisdiction, are there any major fraud concerns or defects due to corruption or fraud that should be addressed? If there are, please briefly discuss the concerns or defects.","No.\n"]
["What changes to the law do you think would be most beneficial to enabling Social Enterprises to flourish in your jurisdiction?","1. Providing tax benefits to Social Enterprises utilizing for-profit Enterprise forms.\n2. Expanding the scope of permitted activity for Nonprofits regardless of activity (even if the Nonprofits for certain activities did not have all tax benefits of other Nonprofits).\n3. Revising rules governing fiduciary duties of corporations and investment managers to enable or require them to consider factors other than financial return.\n4. Making crowdfunding easier, cheaper and more accessible to broaden public investment in Social Enterprises.\n"]
["What changes to the law do you think would be most beneficial to enhancing the social and environmental responsibility of Enterprises generally (whether or not Social Enterprises)?","Implementing a uniform set of standards for ESG policies and reporting of public companies would make it easier for investors and consumers to compare and evaluate which enterprises are in fact doing good in the world, which would drive companies to perform better.\nThere are other ideas that are too “pie-in-the-sky” to implement in this country (for example, one could amend the corporate code to require that any publicly traded company have at least one director elected by the workers of the company, but this would not be a realistic change for our jurisdiction).\n"]
["Is there anything else you would like to add or guidance you would like to provide? Are there any questions we should have asked but did not?","No.\n"]