Benefit Corporations and Social Purpose Corporation (Calif. and WA)

Under the large umbrella of the corporate entity is a subcategory called a Benefit Corporation. This type of corporate entity is legislated in the majority of states in the US, and recently, British Columbia became the first province in Canada to establish Benefit Corporations as an option when forming a company.

Benefit corporations are “for profit” corporations that includes a mandate in the corporation’s articles of incorporation or by laws that directors are required to consider all stakeholder’s interests when making business decisions. The term "stakeholders" includes shareholders, employees, customers, the local and global community, and the environment. In some states, and in British Columbia, Canada, the Benefit Corporation is required to publicly report on an annual basis on the public and social benefits it considered, as measured by an independent third party.

In both California and Washington State, the state legislature opted to create a Social Purpose Corporation (SPC) as an alternative to the Benefit Corporation. The primary difference of a SPC from a Benefit Corporation is that a SPC’s directors are permitted to consider the social and environmental impact of corporate decisions, but are not required to do so. This means more flexibility and discretion in the hands of the board of directors of a SPC.

Both the Benefit Corporations and SPCs are, by default, C-corps, but either can elect to become an S-corp, (or a flow through entity) for tax purposes if so desired.

A Benefit Corporation is not the same thing as a certified B Corporation. The latter is not a legislated form of corporate entity but rather is a third-party certification obtained from the non-profit organization B Lab, that assesses and verifies a corporation’s social and environmental impact.

By establishing a Benefit Corporation a company is making a legal commitment to do business in a way that is sustainable and socially and environmentally responsible. In addition to being the "right thing to do", this commitment may have positive implications with respect to developing a strong and loyal customer base as well as attracting high caliber employees.

Please visit our website at www.kickstartlaw.com and book a discovery call with a business lawyer for more information on benefit corporations, or email us at hello@kickstartlaw.com.

** Disclaimer: This article contains only general legal information and is not intended to replace legal advice specific to the reader’s situation. We strongly encourage you to seek legal advice from your lawyer before acting based on any information given here.

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