Flexible Purpose Corporation

A corporation has the option of organizing as a Flexible Purpose Corporation (“FPC”) if the company is a for-profit corporation that pursues public purpose objectives, such as environmental well–being. The FPC status is an especially beneficial mode of organization that incorporates the benefits of both non-profit and for-profit corporations. At the Law Offices of Salar Atrizadeh, an experienced attorney with extensive experience and knowledge in corporate law and business organizations can assist in educating you about the best form of organization for you and your business.

The Corporate Flexibility Act of 2011 (“CFA”), codified under California Corporations Code §§ 2500-3503, governs FPCs. However, FPCs are also subject to California’s General Corporation Law, unless a specific section expressly provides that it does not apply to FPCs. An FPC may combine environmental, social, and other public interest objectives with an intent to make a profit. Nonetheless, an FPC does not receive any special tax benefits, regardless of its public service objectives. Therefore, an FPC is taxed as a for-profit corporation under federal and state taxation laws. However, an FPC does reserve the right to elect to be taxed as an S–Corporation.

An FPC, is also similar to any other corporation organized under California’s General Corporations Code in that an FPC has broad authority to engage in any business that complies with its Articles of Incorporation and any applicable state or federal laws. However, an FPC is uniquely limited in that under California Corporations Code §§ 2604 and 2605(a), any such business must comply with the FPC’s special purpose.

In general, the board of directors (individuals elected to represent the corporation’s shareholders) of an FPC has the same duties as the directors of a corporation organized under California’s General Corporation Law. However, directors for FPC’s have a few significant variations in their duties. For example, FPC directors are similar to directors of generally organized corporations in that both owe a duty to perform their responsibilities in a good faith manner that is in the best interest of the corporation. Also, an FPC director may rely on corporate officers and employees to the same extent as directors of corporations organized under the General Corporations Law. However, pursuant to Corporations Code § 2700(c), FPC directors are uniquely able to consider the factors that the director deems to be important in preserving the corporation’s prospects, interests, and purpose as set forth in the corporation’s articles of incorporation.

In an FPC, shareholders may bring a derivative action suit (a suit where a shareholder sues the rest of the shareholders on behalf of the corporation) exactly as shareholders in a corporation organized under the General Corporation Law. However, Corporations Code § 2900 provides that in an FPC, no other party except a shareholder may bring a derivative suit. This section intends to establish that beneficiaries of the FPC’s public interest activities do not have standing to bring suit (i.e., do not have the right to file a formal lawsuit) against the corporation’s shareholders, and to preserve judgments of the shareholders and directors from outside parties.