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Flexible Purpose Corporations Coming to California in SB 201?

California SB 201 brings Flexible purpose corporations and corporate mergers into the era of sustainable business structure. Your voice can support broadening business and community sustainability by supporting this bill.

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SB 201, the Corporate Flexibility Act of 2011 , introduced in California’s State Senate on February 8 would authorize and regulate the formation and operation of a new form of corporate entity known as a “flexible purpose corporation.”

It has always appeared weird to me that companies have been seen, and legally required to serve the purpose of "profits only". Business is the productivity arm of society, and productivity is about social networks, environmental stability, long-term sustainability, and in the US -- one would think they would support the tenets of democracy, right?

But legally, companies can be sued by their shareholders or investors when they "do the right thing" for their employees, communities, or the environment if that action negatively affects shareholders’ financial returns.

The legal issue of fiduciary responsibility has long been used as a barrier by companies who prefer or are deterred from taking proactive social and environmental steps. In many cases, this law regarding fiduciary responsibility has given companies legal cover to avoid substantive action to clean up pollution, adopt greener chemicals or avoid sweatshop sourcing.

Under SB 201, any company establishing in California will be permitted to negotiate to include a social and environmental mission that is given equal weight, perhaps even greater weight, than profits.

The Corporate Flexibility Act of 2011 and would authorize and regulate the formation and operation of a new form of corporate entity known as a flexible purpose corporation.

The bill would authorize existing corporations and other forms of business entities to merge into or convert into a flexible purpose corporation upon completion of specified requirements, including approval of the transaction by a supermajority 2⁄3 vote of shareholders, or a greater vote if required in the articles, as specified. The bill would also authorize a flexible purpose corporation to convert into a nonprofit corporation, a corporation, or a domestic other business entity, upon satisfaction of equivalent conditions. The bill would also provide dissenters’ rights of appraisal for shareholders voting against certain transactions, as specified.

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.

This could be a watershed business reform -- and in light of the citizens' uprising in Egypt and other nations, maybe it's time that our power structure allow the voice of the people to be heard in the halls of government and corporate boardrooms.

You can support this movement toward sustainable business model flexibility by letting your state legislators know you support a broader approach to business formation laws.

Edited by Carolyn Allen
| California business | California corporate law | governance |


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