Previously, I've discussed the effort to create a new species of corporation - the flexible purpose corporation.  To this end, Senator Mark DeSaulnier has introduced SB 201.  The Senate Judiciary Committee heard and passed the bill yesterday afternoon.  However, some interesting opposition has surfaced.

Charities Fear Diversion

At the Committee's hearing, witnesses from the California Association of Nonprofits, the Blood Centers of California, the California Society of Association Executives each argued that the formation of flexible purpose corporations could siphon off much-needed resources from effective existing nonprofits by redirecting donor dollars from charitable contributions to flexible purpose corporation investments.

Proponents Emphasize For-Profit Status and Disclosure

Witnesses from the working group that developed the legislation, the Corporations Committee of the Business Law Section of the California State Bar, and Omidyar Network testified in support of the bill.  They emphasized that flexible purpose corporations are for-profit corporations that will not enjoy favorable tax treatment vis-a-vis other for-profit corporations.  The proponents of SB 201 also emphasized the disclosure requirements of the bill (I'll write more about that subject in another post).

What about AB 361?

Senator DeSaulnier also denied that SB 201 is in competition with AB 361 which Assembly Member Jared Huffman introduced as a spot bill (see this earlier post).  AB 361 has been an unpleasant surprise to the working group that developed SB 201 and that worked hard to reach out to a wide range of constituencies.

It remains to be seen whether the flexible purpose corporation idea will result in too much diversion for charities and too little profits for investors.