How To Form A Washington Social Purpose Corporation

By now you have probably heard or read about Washington social purpose corporations (see, for example, my article in GeekWire: http://www.geekwire.com/2012/big-positives-washingtons-social-purpose-corporations/).

And now you might be wondering how to actually form a Washington social purpose corporation. The purpose of this article is to help you better understand the social purpose corporation incorporation process. Of course, we recommend you always consult with a lawyer along the way as well.

Prepare the Articles of Incorporation

First, to form a Washington social purpose corporation, you have to prepare articles of incorporation for filing with the Washington Secretary of State. The articles of incorporation have to include the following:

  • A name for the corporation that includes that words “social purpose corporation”, or “SPC” as an abbreviation for those words.
  • A statement that the corporation is organized as a social purpose corporation under RCW 23B.25 (http://apps.leg.wa.gov/rcw/default.aspx?cite=23B.25).
  • A statement setting forth the general social purpose or purposes for which the corporation is organized (for a discussion of this requirement in more detail, see “General Social Purposes” below).

For example, the general social purpose or purposes for which the corporation could be organized could be expressed in the Articles as follows:

 “This corporation is organized for the general social purpose of promoting the positive short-term or long-term effects of, or minimizing the adverse short-term or long-term effects of, the corporation’s activities upon the corporation’s employees.”

Another example:

 “This corporation is organized to carry out its business purpose under RCW 23B.03.010 in a manner intended to promote positive short-term or long-term effects of, or minimize adverse short-term or long-term effects of, the corporation’s activities upon the local, state, national and world community.”

  •  If the corporation has designated one or more specific social purpose or purposes, a statement setting forth such specific social purpose or purposes. (For a discussion of this requirement in more detail, see “Specific Social Purposes” below).
  • A provision that states the following:

“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 action of the corporation.”

 General Social Purposes

Every social purpose corporation must be organized to carry out its business purpose in a manner intended to promote positive short-term or long-term effects of, or minimize short-term or long-term effects of, the corporation’s activities upon any or all of:

  • the corporation’s employees, suppliers or customers;
  • the local, state, national, or world community; or
  • the environment.

Specific Social Purpose or Purposes

The statute allows, but does not require, social purpose corporations to have one or more specific social purposes, in addition to the required general social purposes.

For example, a  specific social purpose could be to promote a specific type of environmentally conscious farming. Another could be to promote open source software. Another could be to end human trafficking.

Other Optional Provisions in the Articles

The statute does not prescribe that the shareholders of a social purpose corporation adopt a set of third party standards by which the SPC measures its future success in achieving its social purposes.  However, the organizers of the SPC may choose to do so by including a requirement in the articles of incorporation that the SPC must adhere to a specified third party standard. Similarly, the statute gives directors and officers the authority to take into account the specified social purposes in making corporate decisions without fear of liability for sacrificing profitability in favor of the social purposes.  But the statute does not require that the board or officers consider each social purpose in all of their corporate decisions.  If the shareholders do not want the board and officers to have this flexibility, they can include in the articles a provision that requires the board and officers to consider the impacts of every corporate action or proposed corporate action on each of the designated social purposes.

File the Articles of Incorporation with the Secretary of State

Once you have prepared your articles and included, at a minimum, the  information required by the statute, the next step is for the incorporator to sign the articles and file them with the Secretary of State.

Steps Following Filing of the Articles

One you have received the articles of incorporation back from the Secretary of State, you can proceed with the remainder of the organization of the social purpose corporation, including:

  • Having the incorporator appoint the initial board of directors (if they weren’t named in the articles)
  • Holding the organizational meeting of the board of directors to:
    • appoint officers
    • adopt bylaws (there are no unique requirements that a social purpose corporation must include in the bylaws)
    • authorize the initial share issuances and stock subscriptions
    • authorize the opening of bank account
    • authorize the commencement of doing business
  • Obtaining a taxpayer identification number
  • Opening a bank account
  • Applying for business licenses

Conclusion

Forming a social purpose corporation is a little more difficult than forming a regular for-profit corporation. More thought and care needs to go into the articles. However, for the entrepreneur who wishes to conduct his or her business in a more socially responsible or sustainable way, the Washington social purpose corporation offers significant benefits over a regular business corporation that are worth considering.

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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