Washington and California have adopted “social purpose corporation” legislation (which differs in certain key areas from benefit corporation legislation adopted in many other states).

Social Purpose Corporations:

• Enjoy advantages applicable to corporations generally;
• Protect boards of directors and management of corporations pursuing one or more identified charitable or public purposes;
• Provide boards of directors and management ability to adjust weighting of social and profit maximization focus to account for changing circumstances;
• Have mandatory reporting requirements that will provide some measure of accountability and certainty to investors and strategic partners that the corporation is pursuing a social purpose;
• Highlight and brand an organization as having a social or charitable purpose in addition to the maximization of profits;
• Provide shareholders with say in determining the mission of entity;
• May provide access to information to third parties, consumers, strategic partners, investors and others whose interests are aligned with the corporation’s charitable or public purposes;

BUT:

• The same disadvantages applicable to corporations generally also apply to Social Purpose Corporations;
• These corporations must comply with potentially time-consuming and potentially costly additional annual reporting requirements related to social or charitable purposes;
• This is a new form of corporation and potential impact on capital raising is still unclear;
• It may be difficult for a corporation with numerous shareholders to transition to/from status as a Social Purpose Corporation.

Download guidance about setting up a Social Purpose Corporation