Increasingly, social entrepreneurs struggle to choose a legal form for their ventures. The traditional legal forms are not suited to blended social and profit-making purposes. Mangers of a for-profit socially responsible business can find themselves liable to shareholders for failure to maximize profit at all coasts. Conversely, managers of tax-exempt nonprofits conducting social entrepreneurial activities can find themselves liable to the IRS when they try to reward investors and incentivize results.
California may soon offer a new corporate form for social enterprises. The California legislature is considering a bill, S.B. 1463, that would create a new corporate form called the Flexible Purpose Corporation. Similar in purpose to the L3C and the Benefit Corporation, the Flexible Purpose Corporation would provide directors with more flexibility to pursue environmental and social purposes in addition to profitability. To become a flexible purpose corporation, a company’s articles of incorporation would have to specify a “special purpose” that the corporation engages in, which can include but is not limited to charitable activities.