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The Social Purpose Corporations Act and How to Use It

California’s Social Purpose Corporations Act allows entrepreneurs wishing to combine for profit businesses activity with the achievement of a social purpose. The corporation is formed by the traditional filing of Articles of Incorporation which state that the corporation is being formed for one of two special purposes, other than merely a lawful purpose. To be considered a Social Purpose Corporation, the Articles of Incorporation must either: (i) set forth that it is created for a purpose that may be engaged in by a public benefit corporation; or (ii) promote the positive effects or minimize the adverse effects of the corporation’s activities on its employees, vendors, customers, creditors, society in general, or the environment. The Social Purpose Corporation must, in addition to considering the financial interests of its shareholders, consider one or more of the foregoing purposes in making its decisions and taking action to implement its objectives.

Although the directors of the Social Purpose Corporation must fulfill their fiduciary duties to its shareholders, just as any other board of directors would, they must also consider the purposes set forth in its Articles of Incorporation and how those purposes are to be met by taking proposed courses of action. Hence, the directors of a Social Purpose Corporation established to minimize the adverse effects of its activities upon the environment must, in addition to weighing how a proposed action will affect its shareholders, also consider how and to what extent those activities may have on the environment. Each year these corporations must issue an annual report to its shareholders which, along with the usual financial statements, include a “management discussion and analysis” of its operations. That statement must set forth and discuss all actions taken by the corporation to advance its purpose, the impact of those actions and how those actions advance the corporation’s purpose.

The major purposes for utilizing these types of corporations are: (i) allowing a corporation to engage in charitable purposes while allowing it the flexibility to also engage in a for-profit business; (ii) providing greater flexibility in marketing the business’ goods and services, and attracting capital from “social investors”; and (iii) having a greater flexibility than using the benefit corporation because the directors are not required to solely consider the “general public benefit” that a public benefit corporation must be concerned with.

If you are considering starting a business which combines the objectives of making a profit, while desiring to have a beneficial impact on society as a whole, you need the services of a knowledgeable attorney to guide you in making your decision, as well as through the formation process. Michael Leonard, Esq. of San Diego Corporate Law is that attorney. To schedule a consultation with Mr. Leonard to discuss the best way to form your business and whether the Social Purpose Corporation is right for you, or to discuss any other business-related matter, you can visit San Diego Corporate Law or call (858) 483-9200.

Is a social purpose corporation the right choice?


Schedule a Consultation: 858.483.9200