Washington Social Purpose Corporation

In the last ten years, numerous states have passed laws allowing for the creation of a new breed of company: the benefit corporation, an entity that is required to pursue both profits and social good. These laws have taken different forms in different states. In Washington, the legislature passed Chapter 23.B.25 of the RCW and created the Social Purpose Corporation.

A Washington Social Purpose Corporation (SPC) is a corporation formed to pursue profits and social good. The law gives a lot of leeway for determining exactly what social purpose you wish to pursue. Maybe you want to form a company to promote education in schools, or address medical needs in your community, or fund affordable housing, or discover new solutions to environmental issues. All of these (and more) would make excellent pursuits for a Washington Social Purpose Corporation.

Washington State Law

RCW 23.B.25.020 requires that all Social Purpose Corporations carry out their purpose “in a manner intended to 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.”

That’s a pretty wide range: promoting positive effects (or minimizing negative effects) for employees, suppliers, customers, communities and the environment.

How you wish to pursue those broad general goals is up to you.

Why Form a Social Purpose Corporation?

The single most significant difference between a normal Washington Corporation and a Social Purpose Corporation is that an SPC can legally pursue social goals…even if this means less profit returns for shareholders.

A typical corporation is bound by law to maximize shareholder profits. In fact, this is one of the primary fiduciary duties of corporate directors. Failure to do so can lead to shareholders suing the corporation for breach of this duty.

Let’s look at an example. Imagine a typical Washington corporation. The Board of Directors decide that they want to offer their employees a scholarship for college courses. To do so, the Board allocates money from the corporation’s profits to fund the scholarships. At the end of the year, the scholarship is a great success. Many employees are now enrolled in college courses, but profits have taken a significant hit, leading to smaller dividends for shareholders.

In this scenario, shareholders could sue the company and the Board of Directors, claiming that the corporation is not maximizing shareholder profits.

In fact, scenarios like this have played out many times. Time and again, courts have ruled that shareholder profits are more important than various social goods.

Now, enter the Social Purpose Corporation. An SPC is legally bound to pursue not just profits, but specific social goods. This means that the Board of Directors must weigh and balance both the demands of shareholders and whatever social good the company was formed to address.

Imagine the corporation in the scenario above was an SPC. In this case, if the Board of Directors determine that creating a scholarship fulfills the social purposes of the corporation, then shareholders are unable to sue.

How Do I Form a Washington Social Purpose Corporation?

To form a Washington Social Purpose Corporation, you file SPC Articles of Incorporation. Most of the information listed on the Articles of Incorporation is the same information you are required to list for a normal Washington Corporation: name of the corporation, Washington registered agent, number of authorized shares, etc.

Note: All SPCs must have the words “Social Purpose Corporation” or “SPC” in their company name.

The difference can be found in Article 3.

Article 3

Here is where you set your business purpose. This can be a short and simple description, or you can attach extra sheets of paper with a longer and more detailed explanation.

Your Social Purpose Corporation is organized to promote positive and minimize negative effects upon any or all of the following:

• Employees, suppliers, or customers
• Local, state, national or world community
• The environment

You can check all that apply.

In addition, you should note Section 4:

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.

This very language is built into the founding of your SPC in order to guarantee that the company can pursue socially beneficial goals, even if it means reducing shareholder profits.

Fee and Filing

The Secretary of State charges a $180 filing fee for Washington Social Purpose Corporation Articles of Incorporation. You cannot form an SPC online. You must mail or hand-deliver the Articles.

Social Purpose Report

Every Washington Social Purpose Corporation is required to file an annual Social Purpose Report. This is similar to the Annual Report that must be filed by corporations and LLCs, except that it is more detailed.

State law requires that an SPC report information concerning its social purpose goals:

1. Identification and discussion of short-term and long-term social purpose objectives
2. identification and discussion of material actions taken during the fiscal year to achieve social purposes
3. Identification of material actions the corporation expects to take in the future
4. Description of financial, operating or other measures used during fiscal year for evaluating performance of achieving these goals

This Social Purpose Report must be made publicly accessible (for free) on the corporation’s website. The report must be available no later than four months after the close of the SPC’s fiscal year, and it must remain on the website through the end of the fiscal year.