Corporate Flexibility Act of 2011


On February 8, California Sen. Mark DeSaulnier introduced the Corporate Flexibility Act of 2011 (SB 201) which would authorize and regulate the formation and operation of a new form of corporate entity known as a flexible purpose corporation.  As stated in the Legislative Counsel’s Digest:

The bill would specify the required and permitted contents of articles of incorporation that a flexible purpose corporation would be required to file with the Secretary of State, including the special purposes, in addition to any other lawful purpose, that the corporation shall engage in, that may include, but not be limited to, charitable and public purpose activities that could be carried out by a nonprofit public benefit corporation.  The bill would also require management and directors to specify objectives for measuring the impact of the flexible purpose corporation’s efforts relating to its special purpose, and to include an analysis of those efforts in annual reports, together with specified financial statements, to shareholders and would require specified information to be made publicly available, as specified.

Jones Day attorney Todd Johnson has written a new post about the Act on Business For Good and tells us to “stay tuned for my ruminations on what is happening, why and what to expect as this field develops.”  In an earlier post, The Benefit Corporation: A step in the right direction, but . . ., Johnson describes one of the principal differences between California’s Flexible Purpose Corporation and the Benefit Corporation championed by B Lab (the nonprofit behind the B Corporation) as follows:

The “benefit corporation” form seeks to create accountability (beyond reporting) through a system of greater liability, whereas the “flexible purpose corporation” form seeks to unleash directors from the risk of liability, permitting them to experiment more broadly with the right mix of doing well and doing good, without concerns of personal or corporate suits.

Note that under the benefit corporation laws, the purpose of a benefit corporation is to create a general public benefit, which is defined in Maryland as “a material, positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of specific public benefits” (emphasis added).  Quite different from the flexible purposes permitted under the California legislation.

We’re still looking only at the tip of the iceberg.  Much, much more will be coming …

And by the way, our firm just became a Certified B Corporation!