Social Purpose Corporations: Making money and making the world a better place

By October 14, 2014 No Comments

Entrepreneurs are interested in both making money and making the world a better place. Social Purpose Corporations provide an opportunity for a company to go beyond aspirations of doing good and actually define a social purpose in its WP_20140731_001articles of incorporation. Last summer, I discussed the dozen-plus business entity choices available in Washington when I blogged about our state’s recently implemented business entity conversion law. The subject-matter of the post – the wide range of business entity options in Washington – only provided for a brief mention of Social Purpose Corporations, but they deserve more attention than that. Social Purpose Corporations are an exciting addition to our state’s business community, exciting enough to deserve an entire post.

What is a Social Purpose Corporation? Social Purpose Corporations are for-profit businesses, subject to the same legal requirements as any other corporation registered in Washington State. However, Social Purpose Corporations must also declare a “social purpose” – defined in the statute as promoting the positive effects of or minimizing the adverse effects of the corporation’s activities on 1) its employees, suppliers, or customers; 2) the community; or 3) the environment.

Social Purpose Corporations are also required by law to produce annual social purpose reports that are to be furnished to shareholders and made publically available on the corporation’s website. These social purpose reports must include a narrative discussion the corporation’s social purpose and describe the corporation’s efforts to promote this social purpose. The report may also discuss 1) the corporation’s objectives related to its social purpose; 2) the material actions taken by the corporation to achieve its social purpose; 3) actions the corporation expects to take in the future to achieve this social purpose; and 4) the financial, operating, and other measures used by the corporation to evaluate its performance in achieving its social purpose.

Social Purpose Corporations are a relatively recent development in our state, becoming available as a business entity choice in Washington in June 2012. A little more than two years later, there are now 97 active social purpose corporations registered in the state, according to a recent search on the Secretary of State’s website.

For some corporations, giving back to the community is a longstanding tradition and an integral part of their corporate identity. How is a Social Purpose Corporation different from a “regular” corporation with a social conscience? In a nutshell, the shareholders and directors of a Social Purpose Corporation have the ability to take the social purpose of the corporation into consideration when making a decision, even if the ultimate decision will benefit the social purpose but not the overall bottom-line.

Social Purpose Corporations are distinguishable from Nonprofit Corporations, as well as Benefit Corporations, which exist in several other states. Unlike Nonprofit Corporations, Social Purpose Corporations are taxable entities organized to make a profit. And, unlike Benefit Corporations, shareholders of Social Purpose Corporations do not have a separate right of action against the corporation, its directors or its officers for failure to pursue its social purpose.

Is a Social Purpose Corporation an appropriate business entity choice for your company? For entrepreneurs who want to emphasize giving back to the community even, on occasion, at the expense of enhancing profitability, this entity choice may garner serious consideration.

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.

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