California became the seventh state to adopt two new subtypes of stock corporations – a “flexible purpose corporation” and a “benefit corporation” as of January 1, 2012. Now, investors and entrepreneurs can pursue both social and economic objectives allowed by the new corporation subtypes. These two types of new entities may sound like marketing hype but they help shield them against lawsuits brought by shareholders who say that company do-gooding has diluted the value of their stock.
The new stock corporation subtypes differ from traditional for profit corporations that are organized to pursue profit and nonprofit corporations that must be used solely to promote social benefits.
Entrepreneurs who wanted to incorporate social causes or green initiatives often had to become non-profits which limited their ability to raise venture capital.
Approval from 2/3 of a company’s outstanding shareholders is needed to become a benefit corporation. A similar vote is needed to return to the traditional type of corporation.
The Articles of Incorporation for a benefit corporation must include the following additional statement: “This corporation is a benefit corporation.” The Articles of Incorporation for a benefit corporation may identify one or more specific public benefits that shall be the purpose or purposes of the benefit corporation. For complete legal authority, look at California Corporations Code sections 14600-14631.
For a flexible purpose corporation, the Articles of Incorporation must include one of the purpose statements required by California Corporations Code section 2602(b)(1), as well as a statement that a purpose of the flexible purpose corporation is to engage in one or more of the specific purposes provided in California Corporation Code section 2602(b)(2). For complete legal authority, look at California Corporations Code sections 2500-3503.
To help form one of these two new corporations, call business attorney Mitchell A. Port at (310) 559-5259.