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Any experiences with California Social Purpose Corporation -(was Flexible Benefit Corporation)?

I'm working on a Social Enterprise and I am considering incorporating as a California Social Purpose Corporation. (It's like a corporation with the addition that you describe your social benefit in the by-laws).

I realize this is the road less traveled, but I am working on a platform to make democracy work a whole lot better by engaging people in civic discourse and keeping it fair and balance. A purely for profit company in this same space might not prioritize fair and balanced over user growth (and profit) - so it seems like a good thing to instantiate in the by-laws. Also, people often ask me if this is a non-profit which I take as they are looking for an indication that it is a "good" company. So I could drive a stake in the ground an do an SPC or I could do a more common LLC. (With the SPC I can do chapter S filing to get the same tax benefit as an LLC)

So I wanted to through it out to the FD community and see if anyone has had experience with this, or if you have experience with a Benefit Corporation or a B-Corp that is similar, but the SPC doesn't have to go through the auditing. (Which is something a start-up may not want to pay for before it has achieved a product-market fit.)

Or if you are working on a for-profit start-up that also has a social good component - please join in! Lets build a community.


8 Replies

David Stephens
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David Stephens Advisor
Founder and Chairman of Concero Connect, L3C
There are 14 states that recognize L3C corps. Do some research on L3C. I like them much better for a social business. http://www.Conceroconect.net Is an L3C. There are some real advantages to non profits, as they can invest as part of a PRI. David Stephens Advisor to Professor Yunus LinkedIn Profile
Steven Rubenstein
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Steven Rubenstein Entrepreneur
Entrepreneur, Activist, Developer and soon Solver of all the World's Problems
I am looking at starting a social purpose corporation in Washington state for my pet project, Agreedis.org, which is intended to help foster compromise solutions to public problems. I have not yet incorporated, but I have spoken with attorneys about it.

Basically, there is no functional difference between a social corporation and regular corporation except for the by-laws. The big advantage -- other than marketing -- is that your investors cannot force you to take actions that conflict with your stated purpose, such as selling the company to an evil corporation that would ignore your social purpose.

The IRS does not care about a social corporation though, so it does not affect your tax status.
Jared Hardy
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Jared Hardy Entrepreneur • Advisor
Founding Director at Data Roads Foundation
I am on a similar path, although I started with pure 501c nonprofits first -- Data Roads Foundation and partner Local-Shares.Net community welfare cooperatives. I would advise starting with 501c nonprofit forms first, to establish some early market education about your social benefit projects and generate early demand with less early investment risk. Later you can utilize the nonprofit leadership and funders you have found, in for-profit SPC/L3C/B-Corp spinoff projects, which can sell productized elements of the same social purpose goals that the IRS will not allow any 501c institutions to sell directly.

In my example, Data Roads community grid networks would benefit from some unique open source routing software, open hardware, renewable power systems, and packaged configurations that can be productized and sold as hardware bundles or maintenance contracts. A fixed minimum percent of these sales margins can then be dedicated to the 501c nonprofit project(s), as set forth in the S/C-Corp bylaws, forming a virtuous cycle of shared purpose development and growth between all partner institutions.
Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
PetHero, SPC is a social purpose corp - WA was the first state to permit SPCs and we were somewhere in the first dozen or so to form. we are a for profit corporation with a social purpose to fund education. happy to chat offline if i can help. Before the SPC option was available to us the B corp model seemed to be our only option, but also seemed rather artificial to us - paying some private corporation $$ to certify that we are "good". We will let our performance ($$ raised for schools) speak for itself. Also, in doing some research on nonprofits it seemed that 1) they spend a large portion of their time and resources raising money to operate and the % of funds going directly to 'the cause' is all over the map, but often much smaller than the average customer is aware. Lots of stories about large nonprofits spending lavishly on salaries and offices and lobbying etc. while giving donors the impression that their donations are going substantially to 'the cause'. In our informal research we learned that most people just assume that a donation to a nonprofit means that a "large portion" of their donation goes directly to support 'the cause' when very often that is not the case. We feel the SPC model gives us the best of both worlds - rapid scalability, efficiency, flexibility and focus of a VC backed tech company with the ability to "do good" on a larger scale.
Nick Heyming
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Nick Heyming Entrepreneur
CEO at Grow Games Interactive
My startup, Grow Games Interactive, is a for profit Benefit Corp in the state of California. We looked at the flexible purpose but weren't sure what the pros and cons of the two were.
Gopi Mattel
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Gopi Mattel Advisor
Director, Chennai Area at The Founder Institute
+David Fridley. I would be interested in helping out. We have an application development platform that can be used to help develop apps for your purpose. We may be able to help with the buildout. I also have an idea to improve democratic participation that i am interested in getting some leadership around.


Nelson Morgan
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Nelson Morgan Entrepreneur
CEO at UpRise Campaigns, SPC; Research Scientist at ICSI
We're in California too, and decided to go the SPC route. As others have noted, you establish that your social purpose motivation can trump maximizing profit (or even company valuation) - actually you do this in the Articles of Incorporation, even prior to any bylaws. Not being a not-for-profit, you will ultimately have to file tax returns as any other for-profit. And while you avoid the hassle of demonstrating your worthiness of being a not-for-profit, you also can't offer a tax advantage to donors. We largely elected to go this route because we will be getting directly involved in political campaigns, which a 501c3 (such as the one we spun off from) can't do. But it does have the more general advantage that, like other for-profit corporations, there can be some appeal to investors (although their interest in the social purpose needs to overcome the reduced focus on profits or other routes to cashing in).
Robb Smith
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Robb Smith Entrepreneur
CEO at Chrysallis, the World's First Population Transformation Platform
Sorry for the long post, but I published a white paper for my friends around the world on how we handled our governance setup that you might find useful.

Chrysallis Corporate Governance Overview

In creating Chrysallis we set out to establish a corporate governance structure that would be integral in its design and operation: it would be mission driven, guided by core values, and foster healthy human development across its domain of activities. The goal of the Chrysallis structure was to include the best of contemporary governance principles, such as rigorous fiduciary duty and the ability to raise capital as needed, while also transcending the serious limitations of the modern industrial-age paradigm from which they derive.

Our motivation was simple: We believe that as corporations continue to accumulate a lion's share of humanity's collective power and capital, and given that they now operate in a fluid, transnational manner, the life-sustaining systems of the 21st century will only thrive if the regulative systems by which corporations conduct their affairs evolve to a similarly worldcentric moral purview. In short, corporations need a conscience, and that conscience needs the power necessary to guide real behavior. In practice this meant we had to examine and evolve the nature of the social contract among the owners of a corporation, its fiduciary overseers in the form of the board of directors, and management as agents for the owners. We did so in a way that preserves the existing protections afforded by the US Constitution and state law, while also animating a worldcentric corporate conscience in the form of a clear mission and stated core values.

The modern architecture of corporations, arising originally from the European monarchs and later proliferating with the industrial revolution, evolved to focus strictly on profit maximization as the goal and basis of the social contract between owners and their managing agents. As philosopher Jurgen Habermas has pointed out the modern industrial era's scarce resource was value and resource optimization, and so this social contract was, arguably, functionally fit for purpose for the two centuries in which it came to predominance. This focus, moreover, emphasized the role of positivistic or exterior-oriented rule and regulative mechanisms. (The reasons for this are no doubt complex, but likely derive from the rise of the Cartesian worldview that countervailed against previous interior-orienting mythic systems of social regulation vis a vis the church.)

In the 21st century, however, we now face serious threats to life-sustaining systems in every domain and the goal of resource optimization is no less valid but is transcended as the primary hard problem. We are faced instead with the need for the immense power and resources held by the new overlord of social function - the corporation - to be wielded with a conscience that can account for system concerns at all levels of human life beyond just customer and shareholder concerns to societal and global concerns as well. But to do so the corporate structure called for required a balance that combines three elements:

  1. Resource (profit) maximization within the context of its mission, but also not exclusive of its broader social and environmental context
  2. A regulative mechanism whereby the corporation as a societal actor takes seriously the moral responsibility of its power and
  3. An adequate power-wielding mechanism within the corporation itself that can regulate the behavior of the agents within it.

In short, we endeavored to setup a corporation that would be both mission and profit driven; be imbued with a worldcentric moral conscience regulated by core values; be protected fully by US law; and, perhaps most importantly, be governed by power mechanisms wielded by people whose stage of consciousness is deeply post-conventional (i.e., construct-aware, Torbert's Alchemist, Wilber's Turquoise, etc.).

It took us several months to design a structure that met our goals, and since implementing it we have had dozens of requests from others to share what we did. Here's how we did it (though it may not be the only way to meet our requirements):

1. We incorporated in the state of Nevada, which has the most progressive corporate governance statutes in the US, and which allows the board of directors to consider the well-being of society alongside profit in its decision-making. This gave us the statutory foundation for the rest of the structure.

2. We established at the ground floor that the company is driven by mission and regulated by core values by explicitly including both in its bylaws and founding documents. This set out our guiding intentions in the formation of the corporate collective, a key step that acts to cohere the meaning and norming of the initial culture: the team and shareholders begin to share both a semantics and syntax of collective behavior.

(In our case, we purposely set out to establish the collective as a Turquoise/Alchemist "Foundational Community of Inquiry," to use Bill Torbert's language. Order of meaning-making (i.e., stage of development) is one way to dimensionalize the design of a collective, but there are many others. We chose order of meaning-making because of the sensitive nature and grand scope of Chrysallis's mission as a human development platform and the essential bearing that meaning-making constructs have on our ability to enact integrative human developmental systems themselves. Simply: our mission relied on it.)

3. We then established a Core Values subcommittee of the board of directors to act as the conscience of the company in any instance where a major decision by the board or management might contradict the company's core values, mission or might disproportionately harm overall planetary well-being. Because of the complexity of these discernments they cannot be handled strictly in the exteriors - that is, through credos, core values charters, voting agreements, etc. - the territory is too complex and nuanced to be reduced to rules. Indeed, quite the opposite: an important characteristic of a foundational community of inquiry includes resting in the tension of oppositional ideas while allowing the freshness of emergent possibilities to be considered, acted upon and continually re-viewed. This is an organization whose core values must ultimately rest in the minds and hearts of embodied leaders to make their best judgments moment by moment.

4. Of course this only shifted the challenge from the structural exteriors (which modern law is adequately good at anyway) to human interiors. Because of the degree of consciousness necessary to embody the company's core values and make these discernments adequately, we established a gating mechanism for inclusion on to the core values committee: First, we use highly sophisticated and validated psychometric assessments (e.g., those available through Developmental Testing Service). Second, we really get to know core value committee candidates over the course of time and see them operate, especially keeping an eye on 5 key areas: relationship to money and scarcity; core ego gratification needs; emotional triggers and developmental blindspots; behavior and cognitive patterns under stress; and scope of moral concern and perspective-taking.

5. Finally, we come to the tricky territory of power: we had to give the committee real power to perform its duty but sidestep the problems of consolidated power. First we gave the committee a proxy to vote a block of super-voting stock that can effectively control the company in the event that it needs to do so. This voting mechanism is carried by a simple majority of the 3 member committee. Then, in order to protect the founder who is giving up control (but not economic interest) over the voting of his shares to the committee, the founder was given the sole power to nominate members of the committee. This gives him the power to control the depth and character of who is considered to wield his shares but, once approved, prevents him from wielding undue influence over the running of the company (i.e., the Darth Vader move). This gives him a very deep incentive to choose candidates who have the aptitude and altitude necessary to fulfill the vision and values upon which the company was formed, something we believe is still a sacred right of a founding entrepreneur.

In closing, it is not an exaggeration to say that one of the more powerful innovations called for in a world dominated by the corporate form of resource ownership is the animation of a particular kind of worldcentric conscience in corporate behavior. But to do so a unique set of features have to be designed into the company to give the board of directors the legal protection they need to make broader judgments on the one hand and on the other to bestow the company with the kind of interior-oriented discernments that only human consciousness can provide. A special design has to be used in order to ensure that this consciousness is capable of the kinds of tasks and perspectives that it will be called upon to navigate. Finally, the power has to be redistributed in such a way that gives the company's depth-orientations - namely its core values and its mission - the force they need while avoiding the traps inherent in consolidating power in the hands of any one person, no matter how developed they may be.

When all of these requirements are met, the corporate structure can truly be on its way to an integral mode of operation. It may, perhaps, meet the most important test of the integral corporation: Is it a real actualization social holarchy for all its members, for society, and the natural world in which it is embedded?

Robb Smith, February, 2012

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