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September 18, 2013

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Social Purpose Corporations One Year Later

by WSBA
social purpose corps
Learn more about social purpose corporations, and what some of the first entities to hold this designation are doing.

social purpose corpsIn June 2012, Washington’s Social Purpose statute went into effect.  A Social Purpose Corporation (SPC) is organized to benefit one of the following: (1) employees, suppliers, or customers; (2) the local, state, national, or world community; or (3) the environment. RCW 23B.25.020. Many people speculated about what kinds of businesses would adopt the social purpose corporation form. On the Startup Law Blog, Anne Wellman Lewis and John Reed listed the possibilities, including businesses organized to:

  • Promote environmental stewardship and sustainability.
  • Use renewable or low-impact sources of energy whose marginal cost may be higher to the corporation than other options.
  • Provide certain “quality of life” benefits to employees that it considers central to the corporate identity.
  • Select international suppliers whose practices are consistent with the company’s values for worker conditions.
  • Create a taxable affiliate of an existing nonprofit corporation whose social purposes are consistent with the nonprofit’s mission.
  • Commit to donating a certain percentage of the corporation’s profits to charity.

As of August 2013, there were 49 registered Social Purpose Corporations in Washington. Visiting some of these companies’ websites and viewing their mission statements, it is easy to see why they chose to incorporate this way. Incorporating as a SPC allows the company to support a social movement like a nonprofit while still making a profit.

Many companies choose to donate a percentage of their profits to charity or to sponsor community events. An SPC goes one step further. An SPC’s directors may give weight to one or more of the social purposes, rather than solely considering the best interest of the corporation. RCW 23B.25.050. This allows the founder to elevate a particular social cause rather than maximize profit at the expense of society. It allows a company to be socially responsible without being considered financially irresponsible.

Many of the SPCs fall into one of the predicted categories. For example, Make a Stand donates 50 percent of its profit to well-vetted charities who help eradicate child slavery. An eight-year-old girl, who wanted to help child slaves made a lemonade stand, sold lemonade for 172 consecutive days, and raised $100,000 for the cause. She then bottled her lemonade and sold it to stores along the West Coast. Eventually, she formed Make a Stand, SPC.

Snohomish Soap Company sells local handmade soap. It works with women who are unable to find work outside their homes for various reasons, thus improving employees’ quality of life, and making sure their product is locally made.

Amplified Impact helps companies invest in a cause while implementing sustainable business practices. They help market socially innovative companies to create employee engagement, customer satisfaction, and brand loyalty. Because a socially innovative company gives back to the community, customers feel good about buying its products.

So, remember the SPC when advising clients about which entity to form. With all the goodwill being done in Washington, hopefully more states will follow suit.

Young Lawyers Committee — The Voice of New/Young Lawyers

The Washington Young Lawyers Committee (WYLC) is the vehicle for new attorneys and law students to get involved with the Washington State Bar Association.

Read more from the YLC.  Learn more about the YLC.

1 Comment Post a comment
  1. Nov 18 2013

    These benefit corporations are really interesting. I know the 9-year-old who started Make a Stand with her father’s help rang the opening bell alongside Patrick Stewart a couple weeks ago, but does anyone know if Make a Stand has started offering public stock? I think, out of the all the companies in the 19 states that accommodate the formation of benefit corporations, Make a Stand would be the first to go public. It’ll be interesting to see what happens–how investors will react, or if anyone ever tries to take a hostile run at a benefit corp. that’s gone public, as the benefit corporations are allowed to turn down high offers to protect the company’s mission.

    Reply

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