What is a social purpose corporation?

A social purpose corporation is a modified form of a traditional corporation. It is still a for-profit corporation, but it also has a social purpose beyond profit maximization. A social purpose corporation is generally governed by rules similar to those applied to traditional corporations, with a few important differences. First, a social purpose corporation must include in its articles of incorporation a provision stating that the corporation is to engage in a qualifying social purpose or purposes, such as promoting positive effects of, or minimizing adverse effects of, the corporation’s activities upon its employees, suppliers, customers, and creditors, the community and society, or the environment. Cal. Corp. Code § 2602(b)(2)(B). A proposed amendment that would materially alter the social purpose(s) stated in the articles of incorporation must be approved by a two-thirds vote of each class of shares. Cal. Corp. Code § 3000(b). Second, directors of a social purpose corporation still owe fiduciary duties to the corporation, but in carrying out those duties, the directors may consider a wider range of factors, including the overall prospects of the social purpose corporation and its purpose(s) as set forth in the articles of incorporation. Cal. Corp. Code § 2700(c). Third, the board of a social purpose corporation must cause to be sent to shareholders an annual report that includes a management discussion and analysis (MD&A) concerning the corporation’s stated purpose(s) as set forth in its articles of incorporation. Cal. Corp. Code § 3500(b). The MD&A must include certain information, including a discussion of the material actions taken by the corporation during the past year to achieve its stated purpose(s) and the extent to which those actions were successful.