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At the beginning of 2012, California became the seventh state in the U.S. to permit two new subtypes of stock corporations.

    1. Flexible Purpose Corporation – This is ideal for those wanting to engage in more than one of the purposes outlined in California Corporations Code section 2602(b)(2) and the Articles of Incorporation must contain a statement of their intent to do so as well as a purpose statement required under Corporations Code section 2602(b)(1).  With the exception of this requirement, the process for forming a flexible purpose corporation is similar to that of forming any other corporation.  However, given the additional required statements, free form Articles of Incorporation must be prepared and the standard form articles available on the Secretary of State’s website.

 

  • Benefit Corporation – Like a Flexible Purpose Corporation, the Benefit Corporation requires free form articles to accommodate additional required statements.  In the case of a Benefit Corporation, the articles must include the statement: “This corporation is a benefit corporation” and may identify one more public benefits that shall be its purpose.

 
 
To form a benefit corporation or a flexible purpose corporation, customers will need to draft free-form Articles of Incorporation. This is similar to other stock corporations that do not fit into the simple Articles of Incorporation form that is available on the Secretary of State’s website.  The filing fee for both types of corporations is $100, the same fee as a general stock corporation.  The other six states that currently allow at least the Benefit Corporation are Hawaii, Maryland, Virginia, Vermont, New York, and New Jersey.
According to the Secretary of State’s office, the purpose of the new corporation types is to allow entrepreneurs and investors to organize stock corporations that can pursue both economic and social objectives.  The new stock corporation subtypes differ from traditional profit corporations that are organized as profit or nonprofit corporations and must be used solely to promote social benefits.[i]
The primary benefits is for the director.  Directors under a traditional for-profit corporation have a fiduciary duty to maximize profits for shareholders.  Thus, understandably, directors prudently invest on behalf of the company in order to maximize gain, with little to no consideration to social issues that may be important to the mission or beliefs of the ownership of the corporation.  This is because directors fear that they may be found liable for not maximizing profits if they make an investment decision that takes these other characteristics into consideration.  The flexible purpose corporation allows for better protections against liability in such a situation by requiring the corporation to consider the special purpose of the corporation – which can be something identified at formation that ties back into the mission statement of the organization or core beliefs of its owners.
So, if you are looking to make some money while doing good, one of California’s new corporation types may be for you.


[i] https://www.sos.ca.gov/business/be/forms/flexible-purpose-corp-and-benefit-corp.pdf