California passed a new law today that will support social enterprises. The new laws, AB 361 (Benefit Corporations) and SB 201 (Flexible Purpose Corporations) provide additional forms of legal entities to consider for entrepreneurs wishing to create social enterprises. The laws primarily allows businesses to factor social good into their bottom line and is a definite win for social entrepreneurs in California.
Traditionally, entrepreneurs have been limited to two primary corporate vehicles, the corporation and the limited liability corporation. These forms are not appropriate for entrepreneurs seeking to blend profitability with a Special Purpose (profitability with a broader social or environmental purpose). The traditional forms put the directors at risk for making decisions based at the expense of maximizing financial returns for shareholders and other issues.
The Flexible Business Corporation requires the inclusion of a special purpose in its Articles of Incorporation, provides directors with protection for making decisions based on special purposes as opposed to maximizing profits, provides shareholder protections and encourages transparency.
Her are some resources for folks that are interested in the nitty-gritty details and are thinking of starting a social business:
* Gene Takagi’s Nonprofit Law Blog that has a post on this issue with handouts that you can download.