California Social Enterprise
Guide to the Law for California Social Enterprises, Benefit Corporations, B Corporations, and More
This page is specific to California social enterprises, which builds on the basics at our Guide to Social Enterprise in the U.S. Be sure to read that first.
Also be sure to read our Guide to the Law for Entrepreneurs in California.
What is a California Benefit corporation?
A California Benefit corporation is similar to a regular for-profit California corporation, with a few modifications. The biggest difference between a California benefit corporation and a regular corporation is that the benefit corporation allows – and requires – the corporation to pursue both a profit and a positive impact on society and the environment. See our Guide to Social Enterprise in the U.S. for a full explanation of this concept.
More specifically, there are 2 major differences with a traditional corporation:
1. In addition to aiming for profits, the corporation is legally required to work towards a general public benefit, and may also have a specific public benefit purpose
2. Directors of benefit corporation must consider the impact of any action on all of the following in addition to considering the best interests of the corporation itself:1California Corporations Code Sec 14620(b))
- Shareholders;
- Workforce;
- Customers;
- Community and societal considerations;
- Local and global environment;
- Short-term and long-term interests of the corporation; and
- Ability of the corporation to accomplish its general, and any specific, public benefit purpose.
Is a benefit corporation the same as a B corporation?
Nope. See our full explanation.
Is a benefit corporation the same as a public benefit corporation or non profit corporation?
Nope. People often get these confused, for good reason. (We really would like them to change the name of the Benefit corporation, actually).
The California benefit corporation is a for-profit corporation, very similar to a regular corporation. But there is another type of structure called a California public benefit corporation, which is a non-profit entity. Despite the very similar name, these are very different, and operate under very different rules.
What are the differences between a California benefit corporation and a 501(c)(3)?
| Benefit Corporation (California) | 501(c)(3) Non Profit Corporation | |
| Taxes | Not tax exempt, but may be able to deduct charitable giving as business expense | Tax exempt |
| Funding | Can get investment; can’t get most grant funding | No investment; can get grant funding, and donations can be tax deductible |
| Restrictions | Fewer restrictions on activities and decision making | Lots of rules and regulations; limitations on activities; can’t make major decisions without approval from independent board members |
| Ownership | Founders and others can get unlimited financial benefit from the business | All assets and funds are irrevocably dedicated to the mission; founders and staff can only get salaries |
| Setup and maintenance | Easier and less expensive to set up; $800 minimum fee per year | More complicated and expensive set up; no annual fees |
What are the benefits to being a California Benefit corporation?
- Reduced legal liability for directors and officers when considering non financial interests of the company, environment, and community
- marketing
- discounts
- advantages in government procurement
What are the disadvantages of being a California Benefit corporation?
Potential legal liability for directors and officers for failing to consider the environment or other constituencies in making certain decisions.2California Corporations Code Sec 14620(b)
What is a California Social Purpose corporation?
A California social purpose corporation is a newer type of entity created around the same time as the benefit corporation. It used to be called a “flexible purpose corporation.” It is very similar to the benefit corporation, except that it does not have the requirement of creating a general positive impact, only an impact as to specified particular purposes, at the discretion of the business.
What else do California social enterprises need to know about the law?
Aside from the legal structure of the business, most other business law generally applies. See our full Guide to the Law for Business Owners in California.
Resources
Find a good business lawyer who has worked with California social enterprises.
References