Washington Governor Christine Gregoire signed into law SHB 2239, a bill amending the Washington Business Corporation Act (“WBCA”) to authorize the use of social purpose corporations, effective June 7, 2012. Washington follows a growing list of states adopting legislation giving for-profit corporations the legal tools to formally incorporate social and environmental goals into their mission statement and charter documents. The new legislation allows for the creation of what could be considered “hybrid corporations” between traditional for-profit corporations and non-profit corporations. The new subchapter is an enabling act much like the overall structure of WBCA and the Model Business Corporation Act and allows corporations to tailor their specific approach.

Background

Although some for-profit corporations currently devote time and resources to social purposes, the primary aim of a corporation is long-term value growth for its shareholders. Because of this, social and charitable purposes should not significantly deter from the corporate directors’ mandate of seeking financial returns, and directors owe shareholders legal duties—called fiduciary duties—which require that they make decisions in a manner that prioritizes shareholder value. On the other hand, non-profit corporations may seek out charitable and social purposes, but are legally prohibited from distributing profits for shareholders. The new social purpose format allows the shareholders of for profit corporations to remove or modify the legal restrictions traditionally imposed on directors of for profit corporations (e.g. the risk of shareholder “failure to maximize value” lawsuits) so that they may pursue both social and financial goals in the for-profit context.