In the midst of the season of giving campaigns, giving thanks, and just plain giving, it’s an excellent time to talk about corporations that aspire to achieve more than a profit. Earlier this fall, the crazy-popular crowdfunding website Kickstarter made headlines by announcing that it would reincorporate in Delaware as a Public Benefit Corporation.
A Public Benefit Corporation is still a for-profit business entity. However, it differs from other for-profit corporations in one significant way: The corporation is required to aim to benefit the public (i.e., do good) and must include that purpose in its corporate charter. The corporation’s board of directors must take the goal of aiding the greater good into consideration in its decision-making and must report on the corporation’s social impact.
While Washington State law does not provide for Public Benefit Corporations, it does allow the formation of Social Purpose Corporations (SPC). As I mentioned in an earlier blog post, forming a SPC allows a company’s shareholders and directors to take a social purpose – as in one not motivated by the bottom line – into account in their decision-making. Although our law is similar to Public Benefit Corporations in that a corporation is permitted to have a purpose beyond maximizing profits, Washington SPCs differ from Public Benefit Corporations in some ways. For example, SPC shareholders do not have a separate right of action against the corporation based on its failure to pursue its social purpose. This means that the shareholders of a SPC cannot sue the company for failing to fulfill its social purpose.
Washington’s SPC statute states that “(e)very corporation governed by this chapter must be organized to carry out its business purpose … in a manner intended to promote positive short-term or long-term effects of, or minimize adverse short-term or long-term effects of, the corporation’s activities upon any or all of (1) the corporation’s employees, suppliers, or customers; (2) the local, state, national, or world community; or (3) the environment.” In contrast, Delaware’s corporations’ statute defines “public benefit” as “a positive effect (or reduction of negative effects) on 1 or more categories of persons, entities, communities or interests (other than stockholders in their capacities as stockholders) including, but not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.” Is the difference six in one basket, half a dozen in the other? Perhaps.
Many businesses start with an idea to solve a problem, serve a need, or make the world a better place – frequently tied with a vision to serve a greater good. SPCs allow entrepreneurs to form a business entity that enables them to turn a profit while keeping aspirations of serving a nobler purpose in its core mission.
Photo credit: Leticia Bertin on Flickr
This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.