Can You Convert Your Company Into a Social Purpose Corporation?
Yes, an existing Washington business entity can convert into a social purpose corporation (“SPC”). In this blog post, we’ll discuss how an existing traditional corporation can become a social purpose corporation.
To convert a corporation into an SPC, the company needs to take a few steps. First, the board of directors has to recommend the corporate action to the shareholders. The action must pass by at least two-thirds of the votes of the voting group entitled to vote on the corporate action. Further, the action must pass by two-thirds of all other shares voting as separate voting groups. Essentially, the SPC conversion statute controls over any existing arrangement in the corporation’s governing documents. So the corporate action to convert to an SPC needs to be passed by at least two-thirds of the shareholders in each voting group, whether or not they would have been entitled to vote under the articles of incorporation.
If the company approves the corporate action to convert into an SPC, the electing corporation must amend its articles of incorporation to meet all the other statutory requirements for an SPC. You can read more about the requirements in this blog post.
Finally, the electing corporation must give any dissenting shareholders the opportunity to sell their shares back at fair market value. This gives shareholders who wouldn’t have invested in an SPC a chance to get their capital back.
Similarly, an SPC can elect to convert to a traditional corporation. To convert to a traditional corporation from an SPC, two-thirds of the shareholders must approve the corporate action. If approved, the corporation would then need to amend their articles of incorporation to remove the provisions that are required for an SPC. And dissenting shareholders must also be given the opportunity to sell their shares back to the corporation.
You can also convert other entities into and SPC. Although the process of converting an LLC or a limited partnership into an SPC is similar, some of the steps are different. Stay tuned for a discussion of this process in a future post.