California Passes Legislation Creating New Structures for Social Enterprise

California Passes Legislation Creating New Structures for Social Enterprise from The Startup Garage
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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.


Whether you have a question about Social Enterprise, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!
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About Tyler Jensen

I work with entrepreneurs who are looking to attract investment and get out of the "Garage". I am passionate about helping entrepreneurs start companies that matter. I helped launch over 100 Companies, Non-Profits and Social Enterprises. I consider myself a serial entrepreneur, startup coach & trusted advisor. * Launching New Companies (For Profit, Non-Profit and Social Enterprise) * Expert Business Plan Writer * Extensive Network of Business Relationships focused on Launch & Rapid Growth of New Companies * Startup, Growth, Marketing, Technology, Web, Business Systems * Trusted Advisor to CEO’s & Entrepreneurs * Capital Raising Strategy Development * Startup Team Development The first company I started and sold is VAVi Sport & Social Club which grew to over 25,000 members in six years, was recognized as San Diego’s 30th fastest growing private company in 2006 by the San Diego Business Journal and 32nd fastest in 2007, and sold for over 25X the capital investment.