In Washington State, being socially conscious doesn’t mean choosing between doing good and doing good business.
Incorporating or reorganizing as a social purpose corporation (SPC) allows socially conscious businesses greater flexibility to support social and environmental goals.
What makes this emerging corporate entity unique is that maximizing the financial bottom line isn’t a social purpose corporation’s sole and primary objective.
Potentially as an SPC, a business could more easily go green, help give back to communities, require fair trade practices, invest in their employees, or engage in many other sustainable and social goods.
Required General Social Purpose and Optional Specific Social Purpose
The foundational elemental of all SPCs is the same, ultimately the business purpose must promote the general social purpose mandate. Washington State law states:
“[SPC must] promote positive short-term or long-term effects of, or minimize adverse short-term or long-term effects of, the corporation’s activities upon any or all of
(1) the corporation’s employees, suppliers, or customers;
(2) the local, state, national, or world community; or
(3) the environment.”
This is pretty broad and allows an SPC to the freedom to define and implement its social or environmental goals. In addition to the general social purpose, a corporation can choose to promote one or more specific social purposes. Quite simply, an SPC would need to articulate the specific social purpose in a statement as part of its articles of incorporation.
SPCs and Shareholders
“The mission of this social purpose corporation is not necessarily compatible with and may be contrary to maximizing profits and earnings for shareholders, or maximizing shareholder value in any sale, merger, acquisition, or other similar actions of the corporation.”
Traditionally, a corporation’s duty to its shareholders means means increasing the bottom line above all else. In contrast, the director of an SPC will not incur liability for acting in support of the corporation’s social purpose. Instead, actions intending to promote the corporation’s social purpose are in line with its best interets.
While this alternative may not appeal everyone, an SPC can draw in likeminded investors. For one, the SPC must demonstrate its commitment to social good through transparency.
The SPC must make available an annual social purpose report that details efforts to promote its social purposes and assesses the effectiveness of those efforts. Shareholders are able to monitor and evaluate whether the SPC truly reflects its social purpose as intended.