Washington’s Social Purpose Corporations

By February 7, 2017Uncategorized

Social Purpose Corporations (“SPCs”) have existed in Washington since 2012. After being available in Washington for almost five years, there currently are about 250 active SPCs registered in Washington.

An SPC operates much like a normal corporation. It has shareholders, directors, and officers. It can have common and preferred stock, seek outside financing, and make profits. The primary distinction between an SPC and a normal corporation is that the SPC can consider a social purpose when making business decisions, instead of just considering how to maximize profits for shareholders.

75h-1A Washington SPC must carry out some general social purpose. An SPC must be organized to carry out its business purpose to promote positive effects of the SPC’s activities on (a) the SPC’s employees, suppliers, or customers; (b) the local, state, national, or world community; or (c) the environment. In addition to a general social purpose, an SPC may have one or more specific social purposes.

The articles of incorporation for every SPC must state that “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 provision and the SPC statutes regarding director and officer duties are very important because they provide SPC management with very broad discretion to make business decisions, even when the decisions are not clearly in the best interests of the shareholders. The SPC statutes greatly limit a director’s and officer’s potential liability to the SPC and its shareholders for making poor business decisions.

It is difficult to determine the extent to which Washington SPCs are successful businesses—many SPCs do not have an Internet presence, and many have not posted their state-mandated social purpose report in an obvious way. However, at least one SPC seems to have obtained a six-figure equity financing.

Forming a Washington SPC instead of a normal corporation will signal to shareholders, employees, customers, and other stakeholders that the corporation is very committed to a social purpose. In certain industries and communities, that demonstrated commitment may be beneficial to the corporation. However, the benefits of a social purpose commitment should be carefully considered in light of the potentially higher costs that may be associated with operating an SPC, such as higher costs relating to outside debt, equity financing, or credit terms.

Bob Muraski is a business attorney based in Bellingham, Washington. Photo Credit: Ryan McGuire/Gratisography.

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