Why the Social Purpose Corporation is Necessary: Self-identification and Legitimacy.

Effective today, Washington will recognize a new corporate entity: the social purpose corporation.  You can learn more about this legal structure here and here (or even download the legislation’s text here).  The social purpose corporation (or SPC) is Washington State’s social enterprise; its version of the benefit corporation that has been adopted by several other states.  At bottom, these for-profit entities provide the corporation’s management with the legal cover to take actions that further a social or environmental goal, even if furthering that goal would come at the cost of shareholder value. After today, Washington will join several other states, including New York and California, in providing its social entrepreneurs with a legal vehicle to pursue their particular business goals.

Many are skeptical that these new corporate entities (including the SPC) are even necessary, that the legal hurdles preventing traditional corporations from benefiting society are easy to overcome.  These same skeptics argue that marketing is the driving force behind these new entities, that the cache of “social enterprise” will attract a specific consumer in the marketplace.  In a lot of ways, the skeptics are correct. But there is one reason why we need the SPC here in Washington State that no amount of skepticism can challenge.

Forming and operating out of the SPC corporate structure, or any other social enterprise structure across the nation, is a form of self-identification.  The entrepreneurs that I work every day see the SPC as a way to remove any legal hurdles the traditional corporation presents to their goals (real and imagined) and to boldly say: “WE ARE A SOCIAL ENTERPRISE. WE WILL MAKE A PROFIT FROM WHAT WE DO, BUT PROFIT IS NOT OUR PRIMARY GOAL. WE WILL USE THE POWER OF BUSINESS TO MAKE A CHANGE IN THIS WORLD.”  The SPC provides greater context to talk about what the social entrepreneur does.

A couple of months ago I wrote about an episode of ABC’s “Shark Tank,” about how a particular entrepreneur on that show wanted to bring manufacturing back to his small town in South Carolina through his idea and company “Invis-a-rack.”  What was incredible is that this entrepreneur turned down an offer to fund his business in exchange for manufacturing his product in China.  He turned down the money because it would not accomplish his primary goal to provide jobs to his local community.  But that’s not the end of the story.

After I wrote my post, Invis-a-rack reached out to me and thanked me.  What they wanted to thank me for was providing them with a context to talk about their business goals; Invis-a-rack is a social enterprise but didn’t know it.  The representative and I spoke for a long time, and we landed on an appropriate analogy for why the social entrepreneur label was important.  I’m paraphrasing, but the analogy was to faith, for example, denominations of Christianity.  There are many Christian denominations, including Baptist, Methodist, Catholic, etc.  In the end, all these denominations adhere to certain core beliefs. Nevertheless, each denomination provides those worshipers with a context to discuss their particularized beliefs and a name to identify their own community. As humans we have a desire to put labels on what we do, to put things in the right box. Not only is this important as an expression of self-identify, but it’s also important simply because it’s how we communicate.  And so like denominations of Christianity, the SPC provides the social entrepreneur with a way to communicate a different way of doing business.

What’s happening in Washington today is important. Despite the skepticism, Washington has signaled its state sanctioned understanding and blessing on the social entrepreneur. The SPC provides legitimacy.

The article provided above is for general information purposes only and should not be relied on as specific legal advice. This article does not form an attorney-client relationship. If you have any questions about this article, please feel free to contact Peter J. Smith at peter@apexlg.com

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