Social Purpose Corporations in Washington State
In most for-profit corporations, the Board of Directors must focus on maximizing the economic value of the corporation for its shareholders. Directors are potentially liable for breach of their duties to shareholders if they give priority to one or more social purposes over maximizing value for the shareholders. In 2012, Washington joined a short list of states that have enacted laws that allow a for-profit corporation to pursue one or more social purposes.
The Washington Legislature added a chapter to the for-profit corporation statute, RCW Title 23B. This chapter provides for the creation of social purpose corporations and the conversion of “regular” for-profit corporations into social purpose corporations. A corporation governed by this new chapter must be organized in a way “intended to promote positive short-term or long-term effects of, or minimize adverse short-term or long-term effects of, the corporation’s activities upon any or all of (1) the corporation’s employees, suppliers, or customers; (2) the local, state, national, or world community; or (3) the environment.” In addition to these general social purposes, the corporation may designate one or more specific social purposes in its articles of incorporation. Since the law’s enactment, approximately 50 corporations have been formed as, or converted to become, a social purpose corporation in the state of Washington.
Officers and directors of a Washington social purpose corporation are subject to the same standard of conduct as officers and directors of a typical Washington for-profit corporation, except that, in discharging their duties, they may also consider and give weight to one or more of the social purposes of the corporation as the officer or director deems relevant, unless the corporation’s articles of incorporation provide otherwise. As a result, if the officers or directors otherwise satisfy the applicable standard of conduct, some management decisions may be more in line with the corporation’s social purpose(s) and less in line with maximizing value for the corporation’s shareholders.