In this Business Better Than Usual series, social enterprise attorney Kyle Westaway explains the fundamentals of different legal structures available to social entrepreneurs. Earlier, Kyle discussed the benefit corporation and the L3C.
The Flexible Purpose Corporation (FPC) is a new class of corporation, which allows entrepreneurs to select a special social or environmental purpose, in addition to the financial goals of a company.
The FPC is designed to allow the entrepreneur to achieve a special purpose (or purposes) of its own designation. The special purpose may fall within the realm of a traditional charitable purpose, such as religious, scientific, or educational. But the FPC also allows the entrepreneur to choose a special purpose related to any number of stakeholders, including the local community, the environment, employees, suppliers, creditors, customers and/or society.
For example, a real estate developer may see the positive change a community garden can make in a community, so she commits to pursue the special purpose of building one community garden for each residential building she builds.
Upon formation, the FPC, must clearly identify itself as a flexible purpose corporation, as well as use the business designation “Flexible Purpose Corporation” or “FPC” in the name of the company. Furthermore, the FPC must identify the non-financial, special purpose(s) that the FPC will achieve.
On an annual basis, the FPC must release an annual report detailing the special purpose, the annual objectives that it has set to achieve its special purpose, the metrics used to gauge the success of the special purpose, how it has achieved or fallen short of the stated objectives and how much money was spent in furtherance of the special purpose. This report must be distributed to shareholders of the FPC as well as be made publicly available on the FPC’s website.
Armed with the information from the annual report, the shareholders are tasked with enforcing the special purpose and are the only stakeholders with a right of action to initiate a lawsuit if the FPC is not achieving its special purpose.
In contrast to the benefit corporation, there is no mandate to operate in a generally socially or environmentally conscious manner, nor does the FPC require a third-party standard to measure its special purpose against. Instead, in the FPC, the company itself designates and self-reports on its special purpose. In this way the FPC offers a great amount of flexibility as to what non-financial purposes it is pursuing and is not beholden to any outside standard of social or environmental responsibility. However, through the designation of a specific special purpose and an open annual report, the FPC uses transparency to encourage good corporate behavior.
The FPC is an ideal legal structure for entrepreneurs that are seeking to pursue profits and their own, specific purpose.