On January 1, 2012, California introduced two new corporate forms: the “flexible purpose” corporation and the “benefit” corporation.  Both forms are designed to encompass businesses that operate for profit but also have social objectives.

California is the first state in the country to offer flexible purpose corporations, which allow California companies to pursue both profit and social or environmental causes.  Flexible purpose corporations specify a “special purpose,” such as environmental sustainability, in the Articles of Incorporation.  Directors are permitted to consider such purpose in making decisions, and they are shielded from liability in the event that pursuing the special purpose does not maximize company profits.

Benefit corporations must have general social welfare goals, and management must consider general social objectives in their decision-making.  Like flexible purpose corporations, benefit corporations shield directors from liability based on pursuing their social objectives. and d pursue social welfare objectives and have more transparency requirements that traditional stock corporations.

Neither of the new corporate forms offer a tax exemption, but they are attractive choices for companies that wish to seek profit while also considering broader social or environmental goals.

- Claire Kalia

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