Do the 2-Page PBC Conversion Before You Take a Cent of Investment

The Insight

Most founders skip a 5-minute legal filing that protects everything they spend the next decade building. Then one day a buyer they would never work for shows up, offers a premium, and the founder discovers their own charter forces them to sell.

Eric Ries, author of The Lean Startup and Incorruptible, has watched this happen to founders who did "everything right." His advice for any Delaware-incorporated founder with fewer than five people on the cap table is blunt. Do the Public Benefit Corporation conversion now. Today, if you can.

The reason is timing. Once outside money is in, the conversion needs shareholder consents and rounds of legal review. While you still own the whole thing, it is a two-page filing. No permission needed. No board. No process. Eric calls it "by far the easiest thing in the whole book."

How They Did It

1. Read your charter. Open the founding document your lawyer drafted. The first sentence almost certainly reads "any lawful act or purpose." That phrase has been interpreted by Delaware courts to mean maximize shareholder value. That is your default mission whether you like it or not.

2. Sit with your co-founders and write the mission. Not a tagline. The actual reason the company exists, in language you would defend in a court filing. This becomes the new purpose clause in your charter.

3. File the PBC conversion. In Delaware, it is a two-page filing that takes about five minutes when there are no investors to consult. Your lawyer will resist. They will tell you to "keep your options open." Override them. Eric: "Your lawyer works for you. Do it."

4. Lock the mission into the charter, not the website. A mission on your homepage is marketing. A mission in your charter is enforceable.

What Trips Up Founders

"I will do it later." You can. But Eric's rule applies: it is always too early until it is too late. The day Philip Morris or the equivalent shows up with a 10-pence-per-share premium is the day you discover your charter forces the board to accept.

"My lawyer said best-practice docs are fine." Best-practice docs are written to make companies easy to take over. That is a feature for acquirers, not for you. Standard incorporation documents will leave you with the Revlon doctrine running your fiduciary duty during any change of control.

"We are too small for governance to matter." Five people is exactly when governance is cheapest to set up. After your first priced round, every change requires consents you may not get.

When This Doesn't Work

If you are already venture-funded with preferred-stock investors on the cap table, you cannot do this unilaterally. You need shareholder consents and a real conversation with your board. It is still worth pursuing, but it is no longer a five-minute filing. Plan for weeks of legal work and possible pushback from investors who specifically want optionality on exit.

The Question

Before you call your lawyer, ask yourself one thing: if the worst company you can imagine offered you ten pence per share more than the next-best bidder, would you want the law to force you to take it?

If the answer is no, you have five minutes of paperwork to do.