Traditionally, corporations have conducted business with one purpose in mind - to make money. In fact, corporate directors have a fiduciary duty to shareholders to make decisions aimed at maximizing profits. If a director, no matter how worthy his or her intentions, puts a societal objective before shareholder returns, he or she faces potential liability for breach of fiduciary duty.

With the increase in socially conscious companies, coupled with rising societal pressure on all corporations to consider their impact on the environment and their community, this "profits first" structure may not be the best form of entity for every business. In an effort to accommodate this change in the business environment, effective this year, California became the first state to recognize Flexible Purpose Corporations ("FPC").

FPCs are for-profit corporations aimed at promoting both economic and social objectives. In that sense, they are a hybrid between a true "for profit" corporation and a non-profit corporation. In order to operate as an FPC, a company must have a "special purpose" stated in its Articles of Incorporation. The effect of FPC classification is that directors will not be liable for breach of fiduciary duty for making reasonable decisions based on furthering the corporation's stated purpose, not just maximizing its profits.

California's authorization of FPCs is an exciting development in corporate law. Business decisions can now be made with society and the environment in mind, without fear of potentially conflicting with economic interests. If you are interested in forming a FPC, or have questions about converting your existing corporation to an FPC, contact the attorneys at Navigato & Battin for assistance.