Social Purpose Corporations: Reports

Social purpose corporationIf you are a social purpose corporation, don’t forget about your annual social purpose report.  Under RCW 23B.25.150, social purpose corporations have to file a report annually, reporting on how they are doing.

The Social Purpose Corporation Statute, RCW 23B.25.150 (the “SPC Statute”), provides as follows:

“The board of directors of a social purpose corporation shall cause a social purpose report to be furnished to the shareholders by making such report publicly accessible, free of charge, at the corporation’s principal internet web address, not later than four months after the close of the corporation’s fiscal year, and such reports shall remain available on that web site through the end of the corporation’s fiscal year.”

Timing

For companies whose fiscal years are the calendar year, reports should go up no later than April 30.

Contents

The social purpose report is required to include a narrative discussion concerning the social purpose or purposes of the company, including the company’s efforts intended to promote its social purpose or purposes.  It may include the following:

  1. Identification and discussion of the short-term and long-term objectives of the company relating to its social purpose or purposes;
  2. Identification and discussion of the material actions taken by the company during the fiscal year to achieve its social purpose or purposes;
  3. Identification of material actions that the company expects to take in the future with respect to achievement of its social purpose or purposes; and
  4. A description of the financial, operating, or other measures used by the company during the fiscal year for evaluating its performance in achieving its social purpose or purposes.

No Need to Measure and Report Performance Against Third Party Standard

The Washington legislature, when it adopted the SPC statute, expressly chose a permissive and flexible model rather than a prescriptive one.  Thus, SPC shareholders have the choice whether to include in the SPC’s articles of incorporation that the corporation must furnish an annual assessment of the overall performance of the corporation with respect to the achievement of its social purposes, measured against a third-party standard.  This is an example of the flexibility that the SPC statute affords, ranging from certified “B Corps” that measure the SPC’s performance against a third party standard like the standard established B Lab, the sponsor of the certified B Corp, to those that desire a different model.In other words, in Washington, SPCs may, but are not required to, measure their annual performance against a third party standard.  The statute says:

“the articles of incorporation of a social purpose corporation may contain … [a] provision requiring the corporation to furnish to the shareholders an assessment of the overall performance of the corporation with respect to its social purpose or purposes, prepared in accordance with a third-party standard;”

Theory Behind the Social Purpose Report

The theory behind the annual social purpose report is that, through posting on the SPC’s website, the report will provide a meaningful measure of transparency and communication to the SPC’s shareholders and other stakeholders with respect to the decision-making and actions of directors and officers.  The report must include a narrative discussion concerning the social purpose, including the corporation’s efforts intended to promote its social purposes.  If the corporate has adopted a third party standard against which its performance must be assessed, the corporation may include the annual assessment in the report.

Failure to Perform

The failure to furnish shareholders a social purpose report does not affect the validity of any corporate action.

Conclusion

Companies should take care and time to prepare their annual reports, especially since they are going to have to post these reports on their web sites.

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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  • Squareholder

    As a new company, we didn’t want to spend too much time on our first report, so we took a short blog post with some stats on our first six months of operations as a way of reporting out on progress. Plus, we don’t really have any shareholders to report out to! All the same, thanks for the reminder! http://www.communitysourcedcapital.com/six-months-in-and-were-just-getting-started/

    • http://startuplawblog.com/joewallin Joe Wallin

      Thanks for sharing!