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What is New with California Social Purpose Corporations?
On October 11, 2011, to great fanfare, California enacted the Corporate Flexibility Act of 2011 creating two new corporate forms called “flexible purpose corporations” and “social benefit corporations.” In 2014, those were combined and renamed as “social purpose corporations.” The Social Purpose Corporations Act is now codified at Cal. Corp. Code §§ 2500 et seq.
To celebrate the six year anniversary of the Corporate Flexibility Act, let’s check in and see what is new with respect to California Social Purpose Corporations.
What is a California Social Purpose Corporation?
Social purpose or a social benefit corporations are similar to for-profit corporations that most of us are familiar with. California Social Purpose Corporations are formed in the traditional manner by filing articles of incorporation, they have stock certificates and boards of directors in the customary manner. California Social Purpose Corporations are for-profit, but instead of having only one purpose — the maximization of profits for the benefit of shareholders — California Social Purpose Corporations can also have a stated social purpose such as positively impacting society, workers, the environment, etc.
Many More States, Two Countries, and Social Purpose LLCs
Since 2011, 25 additional states and the District of Columbia have passed legislation allowing for the creation of California Social Purpose Corporations bringing the total number of states to 33. Moreover, in 2014, Connecticut amended its legislation to permit “preservation clauses” which prevent the California Social Purpose Corporation from reverting to a normal for-profit corporation. In addition, Illinois has expanded the idea to include limited liability social purpose corporations. The idea has also spread internationally as Australia and Italy now allow for California Social Purpose Corporations. See here.
About 340 California California Social Purpose Corporations Formed
Neither the California Secretary of State nor the Franchise Tax Board has published any statistics concerning the number of California Social Purpose Corporations in California. However, one internet website lists about 340 California Social Purpose Corporations in California. See BenefitCorp.net here.
A random sampling of California California Social Purpose Corporations listed on BenefitCorp.net shows an array of small businesses formed with money-making goals coupled with political and social agendas. For example, one California Social Purpose Corporation is running an internet-based used clothing marketplace and another is offering internet services coupled with promoting a “green” agenda. See example here.
No Reported Case Decisions Involving California Social Purpose Corporations
As far as our research shows, there are no reported cases involving California Social Purpose Corporations either as litigants or with respect to foreseeable legal issues. Among such issues are free speech implications for both employees and for potential founding entrepreneurs with unpopular social purposes.
Further, there appear to be no derivative actions reported. The California Social Purpose Corporation Act allows for shareholders of the corporation to initiate derivative actions against the board of directors for failing to take the social purpose into consideration when making business decisions. See Cal. Corp. Code § 2900. As far as our research shows, no such actions have been filed in California or anywhere in the US.
Contact San Diego Corporation Law Today
If you would like more information about corporations generally and/or California Social Purpose Corporations specifically, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” for 2017 by SuperLawyers.com. Mr. Leonard has the experience to help you form a California Social Purpose Corporation or any other corporate entity. Even a California Social Purpose Corporation needs a good business attorney like Mr. Leonard to review, draft and assist in executing business contracts and with other business-related matters. Mr. Leonard can be reached at (858) 483-9200 or via email.
