If you are starting a San Diego-based business, you have many options for what type of corporate entity that you can form. The most common choices are a standard corporation and a limited liability company. These are generally used when the purpose of the company/business is based solely on the desire to obtain profits and a good rate of return on investment. However, there are some people who want to benefit the social good and use their business as a method of contributing to a better society. A not-for-profit organization can be formed, but as the name implies, not-for-profits do not operate for the purpose of making money. However, there is a hybrid-type corporate structure that can be used, commonly called a “social benefit corporation.” An experienced San Diego corporation attorney can provide guidance and advice if you want to form and operate a California social purpose corporation. Here are some pros and cons of using a social benefit corporation to operate a business.
On the plus side, a social purpose corporation provides many of the same protections that a standard corporation. These may include:
- Providing the corporate “shield” that protects personal and family assets from being seized by business-related creditors if there is a default
- Tax expensing options
- Ability to easily transfer the business
- Continuity of existence
- Prestige and marketing advantages of being a corporation
- Ability to obtain a business tax ID number (which is required for certain types of vendors)
- Ability to establish a business credit rating
Unlike a standard corporation, a social benefit corporation allows you to pursue social causes and the “social good” in addition to making money. A typical for-profit business must justify its business decision under what is called the “business judgment rule.” The rule is based on a good faith effort to maximize the rate of return with respect to the owners of the company and the investors. The business judgment rule does not generally allow a company to focus on social purpose or enhancing the common good. However, a social benefit corporation is explicitly allowed to “do good” without violating the business judgment rule. This means that the investors and owners of the company cannot sue the members of the board of directors if choosing to “do good” makes less money than available alternatives. An example might be a supply-chain choice. Certain raw materials might be less expensive but be tainted by the method of extraction (child labor, for example). The board of directors of a social benefit corporation can make a choice to avoid that sort of supplier without risk of a lawsuit from investors.
Forming a social purpose corporation might be the right choice for your business enterprise depending on your priorities. As noted, a trusted San Diego corporate attorney can help.
Contact San Diego Corporate Law Today
For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard has been named a “Rising Star” for four years running by SuperLawyers.com. Mr. Leonard provides a full panoply of legal services for businesses and proudly serves the San Diego business community. Like us on Facebook.