Updates to the Delaware Public Benefit CorporationsTax Professionals' Resource
June 27, 2014 — 2,989 views
Updates to the Delaware Public Benefit Corporations
Delaware has long been known as perhaps the most business-friendly state in the United States, with a low corporate tax rate that produces a significant amount of savings for domestic businesses on an annual basis. With tens of thousands of corporations headquartered in the state's largest city of Wilmington, Delaware has long accommodated the traditional business that works primarily for the benefit of its shareholders. A relatively recent change to the state's business laws, however, is working to change that reality.
In August of 2013, Delaware adopted a new law permitting the establishment of "public benefit corporations." The state is not the first one to establish such a class of businesses. This new type of corporation is defined as one that works not for the benefit of shareholders and executives, but instead as one that works for the benefit of the community. Evidence that proves such work must be provided to the state on a regular basis in order to maintain the public benefit license that characterizes this type of business. For accountants, that means a few new practices must be incorporated into existing financial management.
Documentation of Community Programs and Benefit Work
Delaware's new public benefit corporations will be required to submit, on at least a semiannual basis, documentation that shows how their work has helped to benefit the community in which they are based. They may also submit evidence of work being done in other communities across the country, so long as it benefits the local population in a demonstrable way. Accountants are the key to showing how the company has leveraged their financial resources for the benefit of those in the community.
Accountants must prepare specific reports about the business' charitable actions and deliver them directly to shareholders every two years. These reports may, upon request by Delaware state officials, be filed with the state's business regulators for periodic review.
New Standards to Supplement Generally Accepted Accounting Principles
Accountants have long been guided in their work by a commitment to Generally Accepted Accounting Principles, or GAAP. For decades, GAAP has been the authoritative voice on what constitutes ethical financial reporting, budget preparation, and earnings disclosures. That remains the case even for public benefit corporations in Delaware, but those accountants who work at such companies in the First State will now need to subject themselves to a secondary authority on ethical reporting and financial documentation.
Known as the Sustainability Accounting Standards Board, this body was formed specifically to help accountants document community involvement work, sustainability spending, and pollution reduction practices, all of which are the primary tenets of a PBC. The SASB is concerned with accurate disclosure of spending on all key areas, disclosure of units used to measure community programs and pollution reduction, and accurate portrayal of expenses incurred by the business as a result.
New Skills for a New Corporation: It's Time to Supplement GAAP
Accountants who opt to work for a public benefit corporation in Delaware are urged to become proficient in SASB standards and to review the GAAP principles that were taught to them at the undergraduate level. Additionally, they're encouraged to come to a greater understanding of community programs, pollution controls, charitable work, and the ethical manner in which spending on such programs must be documented and disclosed every two years. These two changes are the biggest ones facing today's accounting professionals in Delaware.