"Social entrepreneurship" has become something of a buzzword in recent years. The term refers to businesses that have a social, environmental, or humanitarian goal in mind, as opposed to a simple profit margin. In California, a number of these organizations are looking for legal recognition of such enterprises.
This month, a dozen or so companies that conduct business in a socially or environmentally conscious way have filed papers with the state of California to become the first "benefit corporations."
A new state law took effect January 1 that allows companies to distinguish themselves beyond the traditional corporation or nonprofit structures.
"The new category allows corporations to officially adopt policies 'that create a material positive impact on society and the environment' as part of their legal charter," explains Marc Lifsher for The Los Angeles Times. "It also redefines the fiduciary duty of executives and board members to look out for the interests of workers, the community and the environment in addition to meeting their duty to make a profit for shareholders."
The new legal structure protects businesses from being sued by shareholders for not prioritizing profits. This is an important benefit that social entrepreneurs need to consider if they plan to incorporate in California.
Last week, outdoor apparel maker Patagonia became the first company in the state to obtain the new corporate status, reflecting its longtime support of fair labor practices and ethical procurement strategies.
"Patagonia is trying to build a company that could last 100 years," Yvon Chouinard, founder and CEO of Patagonia, told the LA Times. "Benefit corporation legislation creates the legal framework to enable mission-driven companies like Patagonia to stay mission-driven through succession, capital raises, and even changes in ownership."
After legislators passed the measure last year, California became the seventh state in the country to offer businesses the option of becoming benefit corporations. Vermont and Maryland were the first to approve such laws in 2010. They were summarily followed by New York, New Jersey, Virginia, and Hawaii in 2011.
"There is a way to create jobs and grow the economy while raising the bar for social and environmental responsibility," state assemblyman Jared Huffman, author of the bill, said last week. "With this new law, we are attracting new socially conscious companies, investors, and consumers."
Tags : New York, California, Corporate Bylaws, S Corp, C Corp, LLC, LP
Posted: 01/11/2012