Selecting a new business entity type used to be straightforward — the corporation or the LLC. However, in today’s fast-changing business market states are authorizing new statutory entity types to meet specific needs of business owners. That’s great, because the more choices available, the better your chances of finding a good fit for business owners’ and investors’ needs. But now you have more entity types to consider. How do you choose? In this in-depth seminar, you’ll get acquainted with new entity types that are gaining in popularity and ascertain the key considerations when researching what entity type is best for your organization or client.

1. ALTERNATIVE
ENTITIES
PRESENTED BY
TAMARA KLING, ESQ.
KNOWLEDGE SHARE
NAVIGATING NEW CHOICES
FOR BUSINESS FORMATIONS

2. Overview
• Why are there so many statutory business entities these days?
• Series LLC
• Social Enterprise Entities
– Benefit Corporation
– Low-Profit LLC
– Others
• Miscellaneous entities of interest
– Master LP
– “Shareholder friendly” publicly traded corporation act
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3. Why Is It Important to Know about Alternative Entities?
• Choice of entity depends upon many factors
– Type of business
– Business purpose
– Taxation
– Who are the owners
– Who will manage
– Length of venture
– Many more
• Hard to find a business entity that meets all of the business owners’ and
investors’ needs
• The more entities, the better the chance of finding a good fit
• But it can be hard to keep up with, and obtain expertise on the features of
all the new entities
3

4. Why Do States Authorize
Different Forms of Business Entities?
• Provide economic benefits for their citizens
• Benefit people who want to start new businesses
• Encourage people to invest
• Create employment
• Create revenue through filings and taxes
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5. A Brief History of Statutory Entity Creation in America
• Until the mid to late 1800’s business conducted as individuals
• The problem?
– Unlimited liability for the business’ debts
– Only the rich (or those who didn’t mind losing what they owned) could start
businesses
– Hard to find investors to help expand
– Not too many risky ventures
• The solution
– The Corporation
• Business owners and investors had limited liability
• Corporation had own identity; liable for own debts
• More businesses were started, economy grew
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6. A Brief History of Statutory Entity Creation in America
• Corporation did not meet all business needs
• The problem?
– Double taxation
– Burdensome management rules
– Shareholder’s creditors could attach stock
• The solution
– The limited partnership
• Met various needs of business
– Limited liability for passive investors
– Single level of taxation
– Management flexibility
– Charging order
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7. A Brief History of Statutory Entity Creation in America
• Some other entities created to meet needs not met by corp/LP
– Statutory Close Corporation
• Met needs of business owners who want to manage and limit liability
– Professional Corporation
• Met needs of professionals who want limited liability and right to deduct fringe benefits
– S Corporation
• Created by Congress
• Met needs of small businesses that wanted limited liability and single taxation

8. A Brief History of Statutory Entity Creation in America
• Many business owners wanted an entity that provided single taxation,
limited liability, management flexibility
• The problem?
– It didn’t exist
• The solution
– The limited liability company
• Option of single taxation
• Limited liability
• Owners can manage or not
• Charging order protection
• Management and financial flexibility
• The problem?
– Some people preferred the partnership form but wanted limited liability
• The solution
– LLPs and LLLPs

9. Some of the “New” Alternative Entities
• Series LLCs
• Benefit Corporations
• Unincorporated nonprofit associations
• Limited cooperative associations
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10. Series LLC
• What is a Series LLC?
– A limited liability company
– Formed under the laws of a state that authorizes Series LLCs
– That consists of series that function like a separate LLC
• What is a series?
– Part of a Series LLC that can have its own:
• Assets
• Liabilities
• Business purpose
• Members
• Managers
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11. Series LLC - Diagram
Series A
-Hotel-
Series E
-Gas Station-
Series B
-Land-
Series C
-Mall-
Series D
-Apts-

12. What Problem Does SLLC Solve?
• Many corporations, LLCs and other entities own more than one business or
property
• Debts and liabilities associated with any business or property may be satisfied
out of assets associated with any other business or property
• Entity may place each business or property in a separate subsidiary to shield
each from liabilities of others
• Can be very expensive
– Formation and other filing fees
– Annual report and other maintenance fees
• Series LLC laws provide that in a properly formed and maintained Series LLC,
each business or property may be contained in a separate series and each
separate series has its own assets and own liabilities
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13. Savings on Organizational Costs – An Example
• ABC Oil & Gas LLC – a Texas LLC owns and operates 5 oil fields
• ABC wants to separate the liabilities of each oil field
• ABC can form 5 separate LLCs with each LLC owning 1 oil field
– Total org cost = $1,500 ($300 fee for filing certificate of formation)
• ABC can form 1 Series LLC, establish 5 series with each series owning an
oil field
– Total org cost = $300 fee for filing certificate of formation

14. Some Terminology You May See
• The Series LLC itself
– Umbrella
– Container
– Master
– Parent
• The Series
– Cells
– Mini-LLCs
– Subsidiaries
– Baskets
– Units
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15. Some Terminology You May See
• A separation of assets, liabilities, owners, and managers in a single entity
– Concept sometimes referred to as “segregation”, “partitioning”, or
“compartmentalization”
• Be careful of some statutes that use the term “series” in a similar way
“series” is used in corporation statutes
– Authorizes creation of series of interests within classes which have different
rights to distributions, voting rights, etc.
– Do not have liability shield like in a SLLC law

16. Some Possible Uses for a Series LLC
• Owning real estate
– Owners of real estate are often advised to hold each piece in a separate entity
– Each piece of real estate can be placed in a separate series
– Each piece would, theoretically, be protected from liabilities of other piece
with less expense than forming separate entities
• Ownership of personal property
– Business property – i.e. machinery, equipment
– Personal property like airplanes, boats
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17. Some Possible Uses for a Series LLC
• Separating business venture from business assets
– Example: client owns a bakery, property where bakery is located, ovens and
other baking equipment. Form Series LLC and place bakery, property and
equipment in separate series
• Ownership of multiple business ventures
– Example: client owns three bakeries. Form a Series LLC with each store
assigned to a separate series
• Holding securities
– Series LLC concept originated from mutual fund/investment company concept
where there is a master trust and several series, each with its own investment
objective, portfolio of securities, managers, owners
– Example: Venture capitalist invests in four tech start-ups. Assigns shares to
four different series
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18. What State Authorize Series LLCs?
• Alabama (Eff. 1/1/15)
• Delaware
• District of Columbia
• Illinois
• Iowa
• Kansas
• Missouri
• Montana
• Nevada
• Oklahoma
• Tennessee
• Texas
• Utah

19. Traps for the Unwary
• Some state LLC laws use the term “series” but do not limit liability of
individual series
• MN, ND, and WI
• Define “series” as a category of membership interests within a class of
membership interests that have some of the same rights and preferences
but differ in one or more rights and preferences from another category
• Similar to types of interest in corporate shares

20. The Delaware Series LLC Law
• Important Series LLC jurisdiction
• Many Series LLCs are Delaware Series LLCs
• As of 3-1-16
– Approximately 7,300 total Series LLCs
– 820 formed in 2015
• Series concept adapted from DE Business Trust Act (now known as DE
Statutory Trust Act)
– Used in transactions involving mutual funds and highly financed asset
securitizations
• $ Savings for mutual fund – only Master trust has to file SEC registration rather than
each fund
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21. Forming a Delaware Series LLC
• File Certificate of Formation
• Contents
– Name
– Registered office and registered agent
– Notice of limitations on the liabilities of series
– Any other information members choose
• Filed certificate of formation is constructive notice of limitation of liability
of series
• Filing fee = $90
• One copy delivered to Division of Corporations
• Formation effective upon filing or delayed effective date up to 90 days
later
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22. Forming a Delaware Series LLC
• DE SLLC subject to same name, purpose, registered agent, annual franchise
tax provisions as regular DE LLC
• General LLC name requirements
– Contain “limited liability company”, “L.L.C.”, “LLC”
– Distinguishable on records from name of other corporation, partnership, LP, ST, LLC
• SLLC may be formed to carry on any lawful business, purpose, activity -profit
or NP- except banking
• Required to file annual franchise report and pay annual fee - $300
• SLLC must appoint and maintain registered agent
• No statutory provisions re name, purpose, registered agent, franchise tax
applicable to each individual series
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23. LLC Agreement
• Main governing document of Series LLC
• Member agreement as to affairs of LLC and conduct of business
• Series are established within
• Rights of members of series provided for
• Management of series provided for
• Classes or groups established
• Termination of series provided for
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24. Creating a Series in a DE SLLC
• Title 6, Sec. 18-215 Del Code
– LLC agreement may establish, or provide for establishment of 1 or more series
of members, managers, LLC interests or assets
– Having separate rights, powers or duties with respect to specified property or
obligations of LLC or profits and losses associated with specified property or
obligations
– May have a separate business purpose
– May have a separate investment objective
• Each series may sue or be sued, contract, hold title to assets, grant liens
and security interests and conduct business in its own name
– Not in original version of 18-215; added later to address confusion as to a
series’ powers
• Statute does not provide that a series is a separate entity under state law
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25. Limitation of Liability Under DE Law
• Debts, liabilities, obligations incurred, contracted or existing with respect
to particular series are enforceable against assets of that series and not
assets of LLC or different series if:
– Notice of limitation of liability is set forth in certificate of formation
– LLC agreement created one or more series
– Separate and distinct records are maintained for each series
– Assets associated with each series are held in distinct and separate records and
accounted for in such records separately from assets of LLC or other series
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26. Members of DE Series
• Have contractual freedom to decide their financial and management
rights and duties
• May agree to be personally liable for series’ debts
• Classes or groups of members with different rights, powers, duties
allowed
• Voting rights may be on per capita, number, financial interest or any
other basis or denied
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27. Management of DE Series
• Vested in members of series by DE LLC Act
• Decisions of members owning more than 50% interest control
– LLC agreement may provide otherwise
• LLC agreement may provide for managers of series
• Managers are elected, have duties and liabilities as provided in LLC
agreement
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28. More on Members and Managers
• Distributions may be made unless they will make series’ liabilities exceed
fair value of assets
• Event causing member or manager to cease association with one series
does not cause dissociation with any other series
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29. Termination of DE Series
• Series may be terminated without causing dissolution of master Series LLC
• If master Series LLC is dissolved, each series must be terminated and its
affairs wound up
• If LLC is dissolved, series must be terminated and wound up
• Series terminated upon first to occur of
– Time specified in LLC agreement
– Event specified in LLC agreement
– Consent of members owning more than two-thirds of interest in profits (unless
otherwise provided)
– Time there are no members (and personal rep of last member does not consent to
continue)
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30. Changing From DE LLC to DE Series LLC
• Amend certificate of formation to include notification of limitation of
liability of series
• File certificate of amendment
• Filing fee - $100
• Amend LLC agreement to establish series
– Procedure set forth in LLC agreement
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31. The Series LLC Laws of Other States
• Most SLLC laws based on Delaware law
• SLLC formed in same manner as regular LLC
– File articles of organization with SOS
– Financial rights, management provisions, etc. set forth in Op Ag
• SLLC subject to same compliance requirements as regular LLC
– Appoint registered agent, file annual report
• Series established in Op Ag
• Series added or dissolved by amending Op Ag
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32. The Series LLC Laws of Other States
• Debts, liabilities, obligations of series are enforceable against assets of
that series if:
– Notice of limitation of liability is set forth in articles of organization
– Operating agreement establishes 1 or more series having separate liabilities
– Separate and distinct records are maintained for each series
– Assets associated with each series are held and accounted for separately from
assets of LLC or other series

33. The Series LLC Laws of Other States
–Some Inconsistencies
• A few states provide that a series may be considered a separate entity
– TX- specifically provides that series is not a separate entity
• Some (not all) states specifically provide that a series may sue and be
sued, hold assets, enter into contracts in its own name
• Some require public filing with SOS to establish series
• Some require name of each series to include name of master LLC and be
distinguishable from each other

34. Illinois Series LLC Law
• Some differences from Delaware law
– A few states adopted IL approach rather than DE
• Name of series
– Must contain entire name of LLC
– Must be distinguishable from name of other series
• File Certificate of Designation with SOS to form and terminate a series
– Contains series name
– Name of managers
– Whether member or manager managed
– Filed by LLC or any manager or designee
34

35. Illinois Series LLC Law
• May be treated as a separate entity to the extent set forth in the articles
of organization
• LLC and any of its series may
– Consolidate operations as a single taxpayer
– Work cooperatively
– Contract jointly
– Elect to be treated as a single business in order to qualify in IL or any other
state

36. Qualification of Series LLC
Doing Business in Foreign States
• SLLC laws generally provide that a SLLC formed in another state that is
registering to do business as a foreign LLC must state in its certificate of
authority that it is a SLLC
• Some states require statement that the debts and liabilities of a series
may only be enforced against assets of that series
• Statutes do not provide whether individual series must (or may) register
• Most LLC laws that do not authorize formation of SLLCs do not have
provisions dealing with qualification of foreign SLLC

37. Taxation of Series LLC
• Federal income taxation
– Proposed Reg. Sec. 30.7701-1, 75 Fed. Reg. 55,699 (2010)
– Treats each series as a separate entity
– Each series taxed pursuant to check-the-box rule
• Classified by default as partnership or disregarded entity
– Although only proposed, regulations are “substantial authority”
• State income taxation
– Only a few states have issued rulings or guidance
• CA – does not authorize domestic SLLCs but will treat each series of foreign SLLC
registering to do business as a separate LLC, subject to the minimum annual franchise
tax
• TX – will treat all series as a single taxable entity for margin tax purposes
• TN – held that a TN SLLC had to file separate franchise and excise tax returns for each
series

38. A Warning to Business Owners & Investors
• Courts have not interpreted Series LLC laws yet
• State legislatures still need to clarify or change laws
• Federal and state agencies have not ruled on application of laws to Series
LLCs
• Due to lack of court, legislative, and administrative guidance, there are
uncertainties involved in doing business as a Series LLC
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39. A Warning to Business Owners & Investors
• Courts have not interpreted Series LLC laws
• State legislatures still need to clarify or change laws
• Federal and state agencies have not ruled on application of laws to Series
LLCs
• Due to lack of court, legislative, and administrative guidance, there are
uncertainties involved in doing business as a Series LLC
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40. Some of the Unanswered Questions
• Taxation
– Federal rules are not final
– Taxation other than income tax unclear
– Proposed regs do not address treatment of series for federal employment taxes
– Proposed regs do not address ability of series to maintain an employee benefit plan
– State taxation not clear
• Will states follow federal treatment?
• If one series establishes tax nexus will master Series LLC and other series be subject to tax?
• Does the doctrine of veil piercing apply?
– If so, a creditor of one series might be able to reach the assets of another series
– If it applies, under what circumstances would a court pierce a series’ veil?
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41. Some More Unanswered Questions
• Will a state that does not authorize formation of a Series LLC recognize
the internal liability shield granted by a foreign state’s law?
• Will determination of whether a Series LLC is doing business in a foreign
state differ from determination of regular LLC?
– What if only 1 series of multi-series LLC is doing business in state? Will LLC
have to register? Or will that be just one factor in determining whether LLC as a
whole is doing business?
• May an insolvent series file a bankruptcy petition separate and apart
from the master Series LLC?
– Issue – is a series a “person” under bankruptcy law
– If series can file, only its assets become part of bankruptcy estate
• If a series sells interests to the public is it subject to federal or state
securities laws?
• May a series make a filing under UCC article 9?
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42. Series LLCs in the Courts
• Alphonse v. Arch Bay Holdings, LLC, 2013 US App LEXIS 24665
• GxG Management, LLC v. Young Bros. & Co., Inc., 2007 U.D. LEXIS 43462
• Two decisions dealing with the capacity of a series to sue or be sued
• Neither court came to a conclusion
• But good illustrations of some of the issues to be decided

43. Alphonse v. Arch Bay Holdings, LLC
• DE SLLC (Master LLC) assigned a mortgage note to a series
• Default occurs
• Series files a petition to enforce the mortgage and forecloses on
mortgagor’s home
• Mortgagor files action against Master LLC under unfair debt collection
law
• District court dismisses action
– Held that claim against Master LLC was barred by the res judicata effect of the
series’ foreclosure action
– Held that Delaware law governed based on conflicts rule providing that laws of
formation state govern issues involving internal affairs

44. Alphonse v. Arch Bay Holdings, LLC
• Court of Appeals reverses
– For res judicata to bar claim, court must determine that there is a sufficient
identity of interest between the Master LLC and series
– This is a fact based determination that should not have been decided on a
motion to dismiss
– Delaware law did not necessarily govern as it is not clear if the issue of
whether an LLC or a series is liable to third parties is an issue of internal or
external affairs
– Remanded back to district court to determine if DE law governed and if there
was a sufficient identity of interest

45. GxG Management, LLC v. Young Bros. & Co.
• DE Series LLC (Master LLC) bought a boat and formed a series to hold title
to and operate the boat
• Master LLC filed suit alleging poor workmanship and misrepresentation
• Master LLC moved to amend its complaint to add the series as a plaintiff
• District court denied the motion, holding that the Master LLC could
maintain the action even though title was held by the series

46. GxG Management, LLC v. Young Bros. & Co.
• District court later amended its findings of fact and conclusions of law
• Court clarified that it was not holding that the Master LLC could sue on
behalf of the series
• Court clarified that it was not holding that the Master LLC and series
were separate entities
• Court was holding that regardless of those issues the Master LLC had
suffered harm and could sue to recover for that harm

47. Will Series LLC Statutes Catch On?
• “The Series LLC illustrates the costs and benefits of new business forms: the
opportunity to experiment along with the risks of uncertainty” (Larry Ribstein)
• Jury is still out on whether SLLC is “next big thing”
• Could track path of ordinary LLC
– At first, reluctance to form LLCs because of uncertainties regarding taxation, liability
protection in states without LLC statute, etc.
– Once clarified all states passed LLC laws and today LLC is dominant entity type
– If uncertainties surrounding SLLC are clarified same could happen

48. Will Series LLC Statutes Catch On?
• Some indications it may not catch on
– NJ, CA, FL, MN recently enacted new LLC laws and did not include series LLC
provision
• Some indications it may catch on
– AL recently enacted a new LLC law and did include SLLC
– NCCUSL currently drafting uniform law which authorizes SLLCs
• when drafting RULLCA a few years ago NCCUSL criticized concept
– ABA Revised Prototype LLC Act includes SLLCs (original prototype did not)
• But will it catch on with legal professionals?

49. SOCIAL ENTERPRISE ENTITIES

50. Social Enterprise Entities
• Hybrid statutory entities – part for-profit and part non-profit
• Blended mission – earn profits for owners; promote social good
• Incorporated social enterprise entities
– Benefit corporations
– Flexible purpose corporations
– Social purpose corporations
• Unincorporated social enterprise entities
– Low profit limited liability company
– Benefit LLC
• More than half the states have enacted laws authorizing one or more
social enterprise entities

51. Incorporated Social Enterprise Entities
• Some people start a business to earn a profit for themselves and their
investors
– For profit corporation appropriate vehicle
• Some people start a business for charitable or other purpose designed to
benefit society
– Nonprofit corporation appropriate vehicle
• Social entrepreneur
– Wants to earn a profit and benefit society
– For profit corporation not appropriate because directors are thought to have
duty to maximize shareholder value and fear liability for decisions favoring
interests of non-shareholders
– Nonprofit corporation not appropriate because it cannot distribute income to
shareholders

52. What Is a Benefit Corporation?
• An incorporated entity that can earn and distribute profits like a for profit
corporation and have a charitable or socially beneficial purpose like a
nonprofit corporation
• Addresses needs of social entrepreneur
• CA estimated to have most
• Should not be confused with “Certified B Corporation”
– Any entity type may apply for certification
• B Lab – nonprofit that provides third party certification; most commonly used
– Entity completes assessment survey, answering between 150 to 200 questions
measuring its social and environmental impact
– If it scores high enough it can receive certification that it meets the standard of
social and environmental performance and advertise that fact
– Must amend its governing documents to state that it considers interests other
than financial interests of owners

53. The Benefit Corporation Statutes
• Maryland was first state to enact Benefit Corporation law (2010)
• About 20 states have done so since then
• Most statutes are based on a Model Benefit Corporation Act
– Drafted by B Lab
• Delaware enacted Public Benefit Corporation Law that differs in several
ways from Model Act
• Some other states have enacted social enterprise corporation statutes
that differ from Model Act
– Include CA, WA, MN
• Some states have enacted more than one type of social enterprise
corporation statute
– CA, FL

54. Forming a New Benefit Corporation (Model Act)
• Benefit corporation is incorporated in same manner as a traditional for
profit corporation
• Subject to compliance requirements of general corporation law except
where statute expressly provides otherwise
– Must appoint and maintain a registered agent and office
• Company or person located in state authorized to receive and forward SOP and official
documents of corporation’s behalf
– Name must be distinguishable
– Must file documents to effect mergers, change of name, dissolution, etc.
• Articles of incorporation must state that it is a benefit corporation

55. Becoming a Benefit Corporation (Model Act)
• Existing corporation may become benefit corporation by amending its
articles of incorporation to add statement that it is a benefit corporation
• Or existing corporation may merge into a benefit corporation
• Shareholders must approve amendment or merger by a two-thirds vote
– Supermajority intended to ensure broad shareholder support for decision

56. Third Party Standard (Model Act)
• Some think it is the “signature” innovation of benefit corporation
• Generally defined as a standard for defining, reporting and assessing a
benefit corporation’s social and environmental performance that is
– Comprehensive
– Independent
– Credible
– Transparent
• Standard must be developed by independent entities, not Benefit
Corporation
• Factors considered in measuring performance, weighing of factors, identity of
those developing and applying the standards must be available to the public

57. Benefit Corporation vs. Traditional For Profit Corporation
• Benefit corporation differs from a traditional for profit in three main
areas
– Corporate purposes
– Director duties
– Annual reporting

58. Corporate Purposes (Model Act)
• Every benefit corporation has a purpose of creating a general public
benefit
• General public benefit is defined by Model Act as a “material positive
impact on society and the environment, taken as a whole, assessed
against a third party standard, from the business and operations of the
benefit corporation”
• May also have one or more specific public benefits
– Must be set forth in articles of incorporation
• Providing beneficial products or services to low-income or underserved individuals or
communities
• Improving human health
• Promoting the arts, sciences or advancement of knowledge
• May have any other lawful purpose a traditional corporation can have

59. Directors’ Duties (Model Act)
• Directors, in discharging their duties, must consider the effects of any
action or inaction upon
– Shareholders
– Employees
– Customers
– Community and societal factors
– Local and global environmental interests
– Corporation’s short and long term interests
– Corporation’s ability to accomplish its general and specific benefits
• Directors may consider other factors or the interests of other groups that
they consider appropriate

60. Directors’ Duties (Model Act)
• Directors need not give priority to any particular factor or interest unless
articles of incorporation provide otherwise
• Directors are not personally liable for money damages for a failure by
benefit corporation to pursue or create general or specific public benefit
unless articles of incorporation provide otherwise

61. Benefit Director (Model Act)
• Required by most Model Act states to be designated by publicly traded
benefit corporation
• Permitted to be designated by private benefit corporation
• Some Model Act states require all benefit corporations to designate
benefit director
• Benefit director must prepare a statement that will be included in annual
report to shareholders
– Gives director’s opinion as to whether corporation has acted in accordance
with its public benefit purposes
– Gives director’s opinion as to whether directors and officers have complied
with their duties

62. Benefit Enforcement Proceeding (Model Act)
• Model Act states provide that a person may not bring an action against
the benefit corporation or its directors and officers for a failure to pursue
or create a public benefit or for a violation of a duty, obligation or
standard of conduct except in a benefit enforcement proceeding
• Benefit enforcement proceeding may be brought by
– The corporation directly
– Derivatively by a shareholder holding a certain percentage of shares
– A director
– Other persons specified in articles of incorporation or bylaws

63. Annual Benefit Report (Model Act)
• Benefit corporation must prepare annual benefit report including:
– Description of ways corporation pursued a general public benefit and any
specific public benefit
– Extent to which benefits were created
– Circumstances hindering creation
– Process and rationale for selecting third party standard
– Assessment of its overall social and environmental performance measured
against a third party standard
– If there is a benefit director, his or her name and contact information and a
compliance statement
– Compensation paid to each director
– Statement of any connection between organization that established third party
standard and the benefit corporation

64. Annual Benefit Report (Model Act)
• Purpose of report
– Provide shareholders with information so they can evaluate benefit
corporation’s performance in creating a public benefit and judge whether
directors have discharged their responsibilities
– Reduce “green washing” – phenomenon where company falsely claims to be
environmentally and socially responsible
• Report must be sent to each shareholder within 120 days after end of
fiscal year or at time benefit corporation delivers any other annual
reports to shareholders
• Benefit corporation must post report on public portion of website
• Some states also require delivery to SOS

65. Delaware’s Public Benefit Corporation Law
• Differs from Model Act’s benefit corporation in several respects
– Required to identify specific public benefit in certificate of incorporation
– Directors required to balance certain interests
– Benefit report
• Only required every other year
• Does not have to be made public
• Third party standard for measuring performance not required
• 158 formed in first year

66. Delaware Public Benefit Corporation
• Definition
– A for-profit corporation
– Intended to produce a public benefit
– And operate in a responsible and sustainable manner
• Public benefit defined as positive effect or reduction of negative effect on 1
or more categories of persons, entities, communities or interests
– Includes effects of an artistic, charitable, cultural, economic, educational,
environmental, literary, medical, religious, scientific or technological nature

67. Delaware Public Benefit Corporation
• Subject to GCL except to extent PBC subchapter imposes different or
additional requirements
• New PBC formed by filing certificate of incorporation with SOS
– Must identify within its statement of business purposes one or more specific public
benefits to be promoted
– Must state within its heading that it is a PBC
– Required to appoint and maintain registered agent
• Corporation that is not a PBC may become PBC if
– 2/3 of outstanding shares of each class vote to amend the certificate of
incorporation to include provisions required of PBC
– 2/3 of outstanding shares vote to merge or consolidate with survivor being a PBC
– Stockholder not voting for amendment, merger or consolidation is entitled to
appraisal rights

68. Certificate of Incorporation of DE PBC
• Minimum contents
– Corporation’s name
• Must include Benefit Corporation indicator
• Must be distinguishable upon the record from other entities on record
• May be reserved
– Registered office & agent
• Registered office may, but need not be a place of business
• Registered agent receives service of process and other official documents
• May be the corporation, individual, domestic or foreign corporation, LLC, LP or ST
– Purposes
• One of which must be one or more specific benefit purposes
– Capital
• Authorized shares, par value or no par
– Incorporators

69. Incorporation Fees
• Incorporation fees consist of:
– Filing fee - based on authorized shares (minimum - $15, no maximum limit)
– $25 receiving & indexing fee
– $5 fee for entering into database
– $20 municipality fee
– County assessment - $24 plus $9 per page
• Certification page counts as one page

70. Delaware PBC
• Stock certificates and notices of meetings must state that corporation is a
PBC
• PBC may become traditional for-profit corporation upon amendment or
merger or consolidation with approval of 2/3 of outstanding shares
• Board of directors shall manage PBC in a manner that balances
– Stockholders’ pecuniary interests
– Best interests of those materially affected by PBC’s conduct
– The public benefit identified in its certificate of incorporation
• Stockholders may bring derivative suit to enforce directors’ duty to
balance interests
– Must own at least 2% of outstanding shares or if publicly traded, at least 2% or
own shares with market value of at least $ 2 million

71. Delaware PBC – Reporting Obligation
• PBC must provide stockholders with a statement as to its promotion of
the public interests identified in certificate of incorporation and of the
best interests of those materially affected by its conduct
• Must be provided no less than biennially
• Certificate of incorporation or bylaws may require statement provided
more frequently
• Certificate of incorporation or bylaws may require that statement be
made available to public
• Certificate of incorporation or bylaws may require use of third party
standard

72. Other Social Enterprise Corporate Entities
• Minnesota Public Benefit Corporation Act (eff. 1/1/15)
– Corporation may be a “General Benefit Corporation” or a “Specific Benefit Corporation”
– GBC – purpose is to pursue general benefit, which is a positive impact on society, the
environment and the well-being of present and future generations; may state specific public
benefit purposes in articles
– SBC – purpose is to pursue positive impact or reduction of negative impact on specified
categories of natural persons, entities, communities or interests, other than shareholders;
required to set forth specific public benefit purposes in articles
– Name must contain words “General Benefit Corporation” or “Specific Benefit Corporation” or
abbreviation “GBC” or “SBC”
– Articles must state that it is either a GBC or SBC
– Directors required to consider effects of conduct on ability to pursue general and or specific
public benefit purposes
– Annual benefit report is filed with SOS
• Annual benefit report of GBC must use third party standard to describe how corporation has
pursued general public benefit

73. MASTER LIMITED PARTNERSHIP

74. Some Other Alternative Entities
• Master Limited Partnership (MLP)
– Not really new but good to know about
– First MLP formed in 1981 (Apache Corp)
– Early MLPs operated in a variety of industries (hotels, casinos, sports teams,
including the Boston Celtics)
– 1987 – tax law changed to restrict use of MLPs to natural resource based
activities
– Currently there are about 100 MLPs with a market capitalization of approx.
$400 billion
• Advantage of MLP – provides tax advantages of a partnership with
liquidity of a publicly traded corporation

75. Master Limited Partnership – What is it?
• Limited partnership formed under a state LP law
– Formed by filing certificate of limited partnership
– Subject to same compliance requirements as any other LP (filing requirements, registered
agent, foreign qualification, Annual Report etc.)
– Management and financial provisions set forth in LP agreement
– Most MLPs are formed under Delaware’s LP law
• Publicly traded
• Listed on a major stock exchange
– About two-thirds trade on NYSE, rest on NASDAQ
• Not subject to corporate taxation
• Engaged in the transportation, storage, processing of minerals and natural
resources
• To qualify as a MLP and not pay corporate income tax, LP must receive at
least 90% of its income from natural resource based activities

76. “Shareholder Friendly” Corporation Laws
• North Dakota’s Publicly Traded Corporation Act (2007)
– Referred to as US’ first “shareholder friendly” corporation act
– Ch. 10-35 of North Dakota Code
• Problem it addressed: lack of influence shareholders have over corporate
governance
– Enacted in reaction to governance & financial scandals
– Intended to allow shareholders to better monitor director performance
– Carl Icahn was major proponent

77. REVIEW

78. Review
• Why there are so many statutory business entities
• Series LLC
• Social Enterprise Entities
• Master LP

79. Summary
• Several new statutory entities have become available in 21st century
• Intended to solve certain problems identified by their proponents
• Options lawyers may consider when deciding what entity type best fits
clients’ needs
• Include the following
– Series LLCs
– Benefit corporations and other social enterprise entities
• Formed by filing documents with state business entity filing office
• Required to comply with state business entity laws to maintain status

80. ALTERNATIVE ENTITIES
NAVIGATING NEW CHOICES
FOR BUSINESS FORMATIONS
THANK YOU
FOR ATTENDING