What is a Social Purpose Corporation (SPC)?
A type of for-profit corporation available in Washington State supporting socially responsible business. SPCs provide a framework to allow companies to maximize financial returns and to promote positive impact on the company’s employees, community and/or the environment.
Social Purpose Corporation legislation allows corporations to pursue financial profit along with a stated general and specific social and/or environmental benefits of its own designation. SPCs are required to notify prospective investors that their goals will not be limited to earning a profit. Its aim is to protect directors from shareholder legal action and was drafted and supported by the Washington State Bar Association. Filing as a Social Purpose Corporation is $200 in Washington state.
SPCs must issue an annual report that is available to the public and provides details on the general or specific social purposes, including the corporations efforts to promote its social purpose. It may include the annual objectives that it has set to achieve its purpose(s); the metrics used; how it has achieved or fallen short of the stated objectives; and how much money was spent in furtherance of the social purpose. It may be prepared in accordance with a third party standard, but that is not a requirement.
SPCs are managed by directors and officers run day to day operations. Directors may choose to include social purpose in decision making. Subject to corporate tax on net income, dividends are subject to personal income tax. There is currently no tax favored status. SPCs can seek capital as any other corporation, through equity or debt.
Peter Smith of Apex Law Group has prepared an in-depth document providing insight into the national “social hybrid” corporate structure movement, details on why Washington State adopted the SPC and the requirements for forming a social purpose corporation in Washington. This was initially prepared for new business lawyers attending the Washington Bar Association’s 2013 New Lawyer Education Summit and has been modified for this site.
How are SPCs formed?
A corporation may elect to be run as a Social Purpose Corporation at any time by filing papers with the Washington Secretary of State. To be an SPC, the corporation must declare their intent to produce positive short-term or long-term effects (or to minimize adverse effects) through business activities.
These effects can be environmental or social, and can include the corporation’s employees, supply chain, customers, or the greater community, including local, state, national or world. An annual report on the declared social purpose must be made public, through the website or other means.
To become an SPC, the company must file articles of incorporation stating general social purpose corporation status and specific social purpose(s) if applicable. If it is an existing corporation, they must have 2/3 shareholder vote. As any other corporate form, you will draft bylaws, hold organizational meetings and can issue stock. A corporation can re-incorporate as an SPC at any time with a majority vote of the shareholders.
A little background on Social Purpose Corporations
Washington State introduced the Social Purpose Corporation on March 30, 2012, and it became available as a legal corporate form June 7, 2012. The SPC model provides businesses the legal means to maximize shareholder profit through economic, social and environmental impact. Since corporations are established at the state level, this allows business to respond to what their local communities care about the most.
Washington State’s SPC is the only legislation that was supported by their State Bar Association. Social Purpose Corporations was House bill 2239, presented by representatives Pedersen (D), Goodman (D), Rodne (R) and Hudgins (D) and Senate bill SB 6230, presented by Senators Frockt (D), Chase (D), Kilmer (D), Harper (D), Pflug (R) and Keiser (D). It was signed by Governor Chris Gregoire on March 30, 2012 and took effect June 2012.