Changes in Washington Practice Report (#3) / Social purpose corporations

November 20, 2013

Washington State LawThis is installment #3 in a continuing series of Changes in Washington Practice Reports.

The 2013 edition of Washington Business Law by Carlisle and Johnson, volume 31 of Washington Practice, has added statutes and comments regarding Social Purpose Corporations (SPCs), as described in RCW Ch. 23B.25.

These statutes, effective in 2012, are interesting because of the because of the ways in which SPCs are different from traditional for-profit corporations. These differences may be relevant to clients who wish to develop organizations that include broad social purposes.

RCW 23B.25.020 states that “Every corporation governed by this chapter must be organized to carry out its business purposes…in a manner to promote positive short-term or long-term effects of, or minimize adverse short-term and long-term effects of, the corporation’s activities upon any and all of ….”

The intent seems to be to say “do no harm” or at least “do as little harm as possible”.

As noted by Carlisle and Johnson, this statute is “somewhat vaguely stated, which should assist…in qualifying….”

Then, RCW 23B.25.030 says that all such corporations “may have one or more specific social purposes….”

RCW 23B.25.040 requires that the Articles of Incorporation must provide that “The mission of this social purpose corporation is not necessarily compatible with and may be contrary to maximizing profits and earnings for shareholders….”

Potential shareholders are thus forewarned about corporation priorities.

A director may “consider and give weight to one or more of the social purposes of the corporation as the director deems relevant….” (RCW 23B.25.050).

The SPC must “cause a social purpose report to shareholders by making such report publicly accessible, free of charge, at the corporation’s principal internet web site address….” (RCW 23B.25.150).

This is a somewhat remarkable statement. Clearly, the expectation is that SPCs will establish significant web sites, as an essential aspect of pursuing their social purposes.

Shareholders in an SPC may want to own stock because of the social purposes, and fundraising can take place to support these purposes. Progress toward achieving social purposes may be set above the fiscal best interests of the corporation.

In volume 31, Carlisle and Johnson have also included a new Appendix D with the forms required for the establishment and ongoing operations of an SPC.

Included is a form with instructions for “Articles of Incorporation” for a Washington SPC.

Information about business law may be found in Washington Practice volume 31 by Carlisle and Johnson, and by making use of the extracts, summaries and other legal resource materials to be found in Methods of Practice, volumes 1 to 1C of Washington Practice, by Cheryl Mitchell and Ferd Mitchell of Mitchell Law Office.