With limited legal designation for social enterprises, social entrepreneurs are forced to struggle with which legal form to choose for their ventures. Traditional legal entities are not well-suited to blend the social and profit-making purposes of a social enterprise. Management of for-profit companies are liable to shareholders for failure to maximize profit. On the other hand, management of non-profit organizations are liable to the IRS when they reward investors.
Fortunately, California Governon Jerry Brown signed into law Benefit Corporation (!B 361) and Flexible Purpose Corporation (SB 201) legislation. The passage of this law creates two options for socially responsible business models in California.
Generally, Benefit Corporations are corporate entities that are required to pursue social and environmental objectives in addition to seeking profits. Flexible Purpose Corporations are corporations that seek profits and at least one broader social or environmental goal. For more information about the two entities, visit this site.
While these structures are ideal for corporations that would like to be held to a higher standard of social and environmental responsibility, neither will provide tax advantages to the organization. Nonetheless, board members and management can now be shielded from violating their fiduciary duties of maximizing shareholder profits. Also, while both have been signed into law and they are not mutually exclusive, it is unclear which structure will produce the best results.