The distinction between for-profit corporations and not-for-profit (nonprofit) organizations is falling into a grey area as a result of two new forms of business entities; the Social Purpose Corporation and the Benefit Corporation.
Traditionally, for-profit entities have two main goals; (1) make and maximize profits and, (2) maximize shareholder value. This type of entity model encourages profit seeking regardless of the long-term cost to society and the environment. Pursuing social or environmental goals within the framework of a traditional for-profit entity may expose corporate directors to the risk of lawsuits from shareholders interested in profits above all else.
Social Purpose Corporations and Benefit Corporations are for-profit entities that have formally and voluntarily committed to creating social and environmental benefit, in addition to the traditional motive of maximizing profits.
The primary difference between Social Purpose Corporations and Benefit Corporations is the public benefit purpose imposed on each entity. A Social Purpose Corporation must pursue or create one or more public benefits and the public benefit must be specific. A Benefit Corporation must pursue or create a public benefit and that benefit can be broad and encompass social or environmental matters that are impacted by the business and operation of the corporation.
Social Purpose Corporations and Benefit Corporations are subject to the same legal requirements as any other for-profit entity, however, two primary differences are; (1) they provide a “safe harbor” for members of boards of directors who take interests other than profit into account when making decisions on behalf of the corporation and, (2) they can be held accountable for abandoning their commitment to their public benefit purpose.
Some businesses may seek status as a Social Purpose Corporation or a Benefit Corporation to differentiate themselves from for – profit competitors who are in business for the main purpose of maximizing profits.
“The new entities should help bring new kinds of businesses to the state from social entrepreneurs who focus on the triple bottom line of profits, people and planet” said Jeff Clemens (D- Rep Lake Worth), one of the co-sponsors of the legislation along with Patrick Rooney, Jr., (R-Rep Palm Beach Gardens).
Social Purpose Corporations and Benefit Corporations became effective in the state of Florida on July 1, 2014.
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