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The Gianesin Law Firm Newport Beach, California

Non-profit Entities

The Gianesin Firm is well-versed in the creation and operating requirements for traditional non-profit entities. Many of the same requirements for structure and operations that for-profit corporations must abide by also apply to non-profit entities. See Corporate Lawsection. There are, however, special recordkeeping and disclosure rules, both state and federal (tax) that apply to traditional non-profit entities.

Mixed Purpose Hybrids

As of January 1, 2012, two new California corporate laws enable California for-profit corporations to pursue social or environmental objectives as well as financial returns for their shareholders.

The Corporate Flexibility Act of 2011 authorizes the formation and operation of a new type of corporate entity known as a “flexible purpose corporation.” A.B. 361authorizes the formation and operation of a similar, but not identical, type of corporate entity known as a “benefit corporation.”

History/Reasons for New Forms

Historically, there has been a clear dividing line between for-profit and non-profit corporations. Traditional for-profit corporations have been able to promote environmental or socially beneficial causes, but these activities must serve the long-term economic interests of shareholders or else the directors risk liability to them. In contrast, traditional non-profit corporations are required to act for the benefit of society, but they cannot engage in substantial profit-making activities without risking loss of tax-exempt status and enforcement actions. Flexible purpose corporations and benefit corporations are hybrids that bridge this historical divide. They are each for-profit entities, but they offer protection from liability for officers and directors who pursue societal objectives at the expense of corporate profits.

Key Differences Between the New Corporate Forms

Either a flexible purpose corporation or a benefit corporation should make sense for a socially minded entrepreneur whose business would not qualify as a tax-exempt nonprofit and who would like the company directors to remain free to operate the business in a socially responsible way without constant concern for maximizing profits for shareholders.
The key difference is that benefit corporations are required to pursue a general public benefit and to adhere to an independent third-party standard for defining, reporting, and evaluating their social and environmental performance. They must undertake annual comprehensive assessments, measured against the third-party standard, of the corporation’s impact on society and the environment.

The flexible purpose corporation law is intended to allow shareholders to determine for themselves their own preferred mix of social and economic corporate objectives. The founders of a flexible purpose corporation select (and identify in the articles) one or more special purposes from a list in the statute. Unlike benefit corporations, a flexible purpose corporation is not obligated to pursue a generalized public benefit and is not required to measure its performance against any third-party standard. However, a flexible purpose corporation is subject to special shareholder reporting requirements (unless it is eligible for a shareholder waiver of the requirements and its shareholders elect to waive them).

The Gianesin Law Firm counsels clients on the kind of flexible non-profit entity will best suit their needs and assists with the formation and proper structure of the entity.