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Companies of the future come with a purpose, literally

on January 8, 2013 | in conscious, fledglings, seattle, spc

All around the world, entrepreneurs are starting companies to solve some of the world’s biggest environmental and social problems. These are the companies of the 21st Century. So why should these cutting-edge companies use ancient corporate structures?

Benefit Corporations, LC3s, Social Purpose Corporations–these are the latest innovations in governing mission-focused businesses for the future.

Social Purpose Corporations came into Washington State law just last summer. They allow corporations to instill social or environmental purposes into a company’s articles of incorporation, and they empower directors to make decisions in the interest of more than just the financial bottom line.

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My company, Community Sourced Capital was founded with a mission to fundamentally challenge financial paradigms by building lending relationships between citizens and community businesses, all in the name of creating sustainable local economies. We knew that designing financial tools for the 21st Century would call for a company of the 21st Century, so we formed as a Social Purpose Corporation.

Admittedly, as a young company, we have yet to test the full power of being an SPC  since the same founders that created the mission still control the company. But we’re looking ahead to a time when we run the company with other voices (investors) in the room, too. And about those investors… some lawyers advised us that the SPC structure could turn off investors most interested in maximizing their financial return. “Well, that takes care of that,” we said.

Here’s a good example I’m borrowing from Startup Law Blog editor Joe Wallin about why SPCs could matter in the sale of a business: The higher bidder always wins, right? What if the lower bidder has a mission more in line with your company’s mission? Social Purpose Corporations empower a board to select a bidder based on more factors than just the financial return for investors.

Nearly 30 companies have incorporated as Social Purpose Corporations in the last 6 months, including TayaSola, a fellow Fledge alum selling solar lantern kits that provide clean lighting solutions and teach African children the foundations of solar electricity. I asked TayaSola Founder Alma Lorraine Bone Constable why she formed an SPC: “Profit is essential to a successful business. We are interested in balancing profit with purpose, as our vision encompasses more than being financially successful. It’s vital that TayaSola’s form allows our corporate culture to flourish.”

Becoming an SPC doesn’t solve any of the challenges of being a startup. Every fledging company has long roads ahead of them. Thanks to Social Purpose Corporations, businesses that start with a purpose can live on with one too.

Casey Dilloway is a co-founder of Community Sourced Capital. He also helps teach Social Entrepreneurship at the Bainbridge Graduate Institute. Connect with Casey on LinkedIn or follow him on twitter at @CaseyJD.