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Social Purpose Corporation

The State of Washington now recognizes "social purpose corporation" (SPC) as a type of for-profit corporation. And for some groups, this style of organization may be preferred over a nonprofit one. Think of a social purpose corporation as a hybrid between a traditional for-profit company and a nonprofit. Directors of a for-profit corporation have a duty to act in the best interest of the corporation. This duty has been interpreted as a responsibility to maximize the financial returns for shareholders. Conversely, nonprofit organizations seek out charitable and social purposes, and they are legally prohibited from distributing profits to members, officers, and others.

Social purpose corporations, on the other hand, can pursue both social and financial goals in the for-profit context. A State-registered SPC operates its business “in a manner intended to promote positive short-term or long-term effects of, or minimize adverse short-term or long-term effects of, the corporation’s activities upon any or all of (1) the corporation’s employees, suppliers or customers; (2) the local, state, national or world community; or (3) the environment.” But, it is not be eligible for federal 501(c)(3) status. Consider the comparisons in the table and downloadable chart below when deciding which organizational type best suits your situation:

Nonprofit OrganizationSocial Purpose Corporation
  • Can pursue their own mission
  • Can pursue social purposes alongside maximizing profits
  • Easier to get donations and grants
  • Can issue stock
  • Cannot distribute profits to members, officers, and others
  • Can distribute profits to shareholders
  • May be eligible for 501(c)(3) tax-exempt status
  • Required to post an annual report about their efforts to achieve social purposes

For a more detailed comparison between a traditional business corporation, social purpose corporation, and nonprofit corporation (i.e., 501(c)(3)), see this Business Entity Comparison Chart from Apex Law Group, LLP.

Content contributed by: Yoshihiro Fumoto, 501 Commons intern