Key Takeaways

  • Washington created a Social Purpose Corporation (SPC) instead of adopting the Benefit Corporation model used in other states.
  • SPCs allow businesses to pursue social and environmental goals alongside profits but with more flexibility and fewer reporting requirements.
  • SPCs differ from B Corps (a certification) and Benefit Corporations (a legal form), though all share an emphasis on social responsibility.
  • SPCs must state their social purpose in their articles of incorporation and provide annual reports, but are not legally liable if they fall short.
  • The SPC structure appeals to entrepreneurs who want to balance profit with impact while retaining flexibility in decision-making.

In a B Corp Washington State, also known as a B Corporation, the organization is concerned about doing more than creating value for its shareholders. B Corps aim to have a positive impact on greater society.

The Need for B Corps

Big businesses have proven that they have the power to deliver results. Unfortunately, these results are generally focused on benefits to shareholders, rather than the type of benefits that make our world a better place and have demonstrable benefits for society at large.

While government agencies and non-profits may make every effort to intervene, neither of these entities has the means or the power of big businesses. A question has therefore been posed: What if there was a different style of corporation — one which provided both monetary success and benefits for society?

Traditional Business Models

The traditional model of business has been to gather raw materials, make something new, sell it, and make a profit to add to the wealth of an individual or organization. This model has left a trail of destruction in its wake, in terms of devastating impacts on the environment, the proliferation of poverty and unfair distribution of resources. In contrast to this, the ethos of responsible corporations is to create positive changes, both socially and environmentally.

The idea of Corporate Social Responsibility (CSR) is still relevant when it comes to gleaning benefits for society from businesses. This concept became prevalent when it became apparent that customers cared about how a company showcased its commitment to environmental and social issues. The notion of sustainable business practices took the concept of CSR a step further, incorporating factors such as environmental impact and carbon footprint. However, there was a persistent suspicion that certain companies treated CSR as a marketing tool rather than an integral facet of the company's operations.

Adopting a New Approach

There was a great need for a new style of corporation, with a structured approach to creating a positive impact on society. However, the legislation that goes along with this takes a significant amount of time to be developed and adopted. A new business certification system called B Corporations or "B Corps" was therefore set up to recognize companies driven by social and environmental impact concerns.

Being a B Corporation enables a company to use a third-party assessment, trusted by investors and customers, to demonstrate the beneficial impact that it has on society and the environment. Since being introduced, the B Corporation certification has been growing in popularity with key stakeholders, including investors, companies, and customers. By September 2012, there were already more than 600 certified companies.

Over and above the B Corporation system, significant progress has been made in creating a legal company structure (equivalent to an LLC, an S Corp, or the like). Thanks to this structure, companies can now incorporate with their commitment to social and environmental responsibility as one of their cornerstones. Maryland became the first U.S. state to have a Benefit Corporation bill passed in 2010.

Benefit Corporations and B Corporations: What's the Difference?

Benefit Corporations and B Corporations are terms often used interchangeably, but there are a number of significant differences between them.

  • A Benefit Corporation, unlike a B Corporation, is a formalized legal entity. It is similar in structure to other types of corporations but is set apart by greater degrees of accountability, transparency, and purpose.
  • The structure of a Benefit Corporation requires all stakeholders, rather than just shareholders, to be taken into consideration during the decision-making process.

Why Washington Chose the SPC Model

When Washington lawmakers considered adopting Benefit Corporations, they opted instead for the Social Purpose Corporation (SPC) structure. Legislators felt that an SPC provided more flexibility than the rigid reporting and enforcement requirements of Benefit Corporations. By passing SHB 2239, Washington allowed entrepreneurs to formally embed social or environmental objectives into their corporate structure without creating new layers of liability.

This approach was designed to strike a balance: encouraging companies to align with social values while ensuring that traditional investors would not be deterred by overly strict accountability rules.

Social Purpose Corporations in Washington

Following long deliberations, Washington legislators have approved a new entity called the Social Purpose Corporation (SPC). This has been done in place of implementing a Benefit Corporation bill as other states have done. This allows companies to work towards achieving environmental and social goals while pursuing financial returns. When compared to Benefit Corporations in other states, Washington's SPC bill has less stringent requirements in terms of verification and reporting.

  • Rather than having a reporting standard that is externally verified, an SPC is simply required to publish a report every year, detailing how the company is fulfilling its social purpose.
  • SPCs are not obligated to consider social purposes in their decision-making — rather, they "may" do so.
  • An SPC can never face legal action for failing to pursue social purposes.

Importantly, having B Corporation certification does not in any way mean that a company cannot be incorporated either as a Benefit Corporation or as an SPC. Rather, any company can use B Corp certification as a way of confirming its commitment to social and environmental issues.

Key Features of a Social Purpose Corporation Washington

SPCs must identify at least one general or specific social purpose in their articles of incorporation. Examples include:

  • Promoting positive effects on the environment.
  • Supporting underserved communities.
  • Advancing artistic, educational, or cultural goals.

Unlike non-profits, SPCs remain for-profit entities, meaning they can generate returns for shareholders while pursuing their social mission. Directors and officers are explicitly authorized to consider the company’s stated purpose in their decision-making, even when it may not maximize shareholder profits.

Key SPC requirements include:

  • Articles of Incorporation: Must outline the social purpose.
  • Annual Report: Must describe the actions taken to advance the purpose. Unlike Benefit Corporations, there is no requirement for third-party verification.
  • Liability Protection: Shareholders cannot sue directors for failing to pursue the stated social purpose.

Advantages and Challenges of SPCs

SPCs in Washington offer a middle ground between traditional corporations and Benefit Corporations.

Advantages:

  • Flexibility to balance profit and purpose without mandatory prioritization.
  • Attractive to entrepreneurs who want to distinguish their companies in the marketplace.
  • Opportunity to attract employees and consumers motivated by social impact.
  • Reduced risk for directors compared to stricter Benefit Corporation statutes.

Challenges:

  • Because SPCs lack strict accountability standards, critics argue they risk being used as a marketing tool rather than driving real impact.
  • Investors unfamiliar with the SPC model may hesitate if they perceive uncertainty about how profits and purpose will be balanced.
  • Annual reports are required but may not provide consistent benchmarks for performance.

Comparing SPCs, Benefit Corporations, and B Corps

Understanding the distinctions between these three concepts is critical:

  • Social Purpose Corporation (Washington-specific legal entity): For-profit business that declares a social purpose in its charter; lighter reporting and accountability requirements.
  • Benefit Corporation (legal entity in many states): Requires directors to balance profit and social goals with strict accountability and transparency standards.
  • B Corporation (certification): A third-party certification issued by B Lab that any entity—whether an SPC, Benefit Corporation, LLC, or traditional corporation—can pursue to demonstrate verified social and environmental impact.

Frequently Asked Questions

  1. What is a Social Purpose Corporation in Washington?
    A Social Purpose Corporation (SPC) is a for-profit entity that includes a stated social or environmental purpose in its articles of incorporation.
  2. How does an SPC differ from a Benefit Corporation?
    Unlike Benefit Corporations, SPCs face fewer reporting and accountability requirements, giving directors more flexibility while still allowing social goals.
  3. Can a Washington SPC also be a B Corp?
    Yes. Any SPC can apply for B Corporation certification from B Lab, which is a voluntary third-party designation.
  4. What reporting is required for SPCs?
    SPCs must publish an annual report describing how they advanced their stated purpose, but no third-party audit or verification is required.
  5. Why would an entrepreneur choose an SPC over a traditional corporation?
    SPCs allow entrepreneurs to pursue social impact while retaining profitability, making them attractive to socially minded investors, employees, and customers.

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