Sunday, January 1, 2012

California Flexible Purpose and Benefit Corporations

Enacted in October 2011 and effective today, January 1, 2012, Corporations Code Section 2500 et seq. and Section 14600 et seq. create two new types of business entities, the flexible purpose corporation and the benefit corporation. Both allow the organization of corporations which are, while not non-profit, encompass both economic profit, as well as social welfare, objectives. In short, these are hybrids between traditional for-profit corporations, and traditional nonprofits. Or, if you prefer, socially conscious stock corporations.

Flexible purpose corporations may pursue social welfare objectives without liability to directors for not maximixing profit; one or more "special purposes" must be specified in the Articles of Incorporation. Benefit corporations must pursue social welfare objectives and have more transparency requirements that traditional stock corporations.

Benefit corporations permit corporate directors to take into consideration and to pursue general or more specific social welfare goals, in addition to the tradtional profit motive, and will not be liable on account of pursuing these objectives for not maximizing shareholder return.

These are new and untested entities in California, and therefore are obviously not right for all incorporations, but benefit corporations are already in existence in other states, and more states still have bills proposed and pending. Neither form will offer tax exemption.

See also Berkley Law: New Corporate Forms
Q&A on Flexible purpose corporations

Update: California businesses seeks new 'benefit corporation' status, Marc Lifsher, Los Angeles Times, January 3, 2012

1 comment:

Darren Chaker said...

It seems Nevada, Deleware, and a handful of other states continue to progress with varying asset protection to increase business, while California continues to pass additional laws that do not attract wealth or business.