Beyond Business as Usual Blog
Legislative Notebook
A Low Profit Limited Liability Company (L3C) is a corporate structure uniquely provided for Social Enterprises. It bases itself off the LLC, but differs in its aim to provide a tax incentive for Private Foundations giving Program Related Investment (PRI).
L3Cs are similar to LLCs in that they have the liability protection of a corporation, the flexibility of a partnership and membership shares can be sold to raise capital just like common stock. However, unlike the LLC, the L3C must be formed for a charitable or educational purpose, it cannot have a significant goal of producing income or capital appreciation and it may not accomplish political or legislative objectives.
To date Connecticut has not enacted L3C legislation but there are presently focus groups combining the legal and business community to work out the changes that it would take to facilitate the passage of L3C laws. Stay tuned for Connecticut updates and please email if you'd like to get involved.
As of March 2011, there are 354 L3Cs in the United States --
- 56 organized in Illinois
- 8 organized in Louisiana
- 78 organized in Michigan
- 15 organized in North Carolina
- 1 organized under the Oglala Sioux Nation's law
- 31 organized in Utah
- 144 organized in Vermont
- 21 organized in Wyoming
Maine's legislature is slated to enact L3C law starting July 1 as part of a sweeping overhaul of its limited liability company act.
Please note that the state of organization is not necessarily where the social venture actually operates.
Proponents of the L3C are approaching Congress to introduce a federal bill recognizing the L3C. This federal measure is the proposed Philanthropic Facilitation Act of 2010.
Read the final draft of the proposed Philanthropic Facilitation Act.
Links / Resources for the L3C:
Americans For Community Development (Created by L3C Founder, Robert Lang):http://www.americansforcommunitydevelopment.org
LinkedIn’s L3C Connect Group and Discussion Board:
http://www.linkedin.com/groups?home=&gid=1971652
B Labs – Benefit Corporations
http://www.bcorporation.net/
Social Enterprise Alliance
http://www.se-alliance.org/
Benefits of L3C:
Unique hybrid legal structure – uniting non-profit and for-profitDoes not rely strictly on grants
Unlimited earned income potential
Attracts venture capital and social investment
Critique of L3C:
Argument that the L3C is no different from LLC structure with regard to tax benefits;The IRS and Federal Treasury Department have not given an opinion on L3C and foundation benefits
No federal bill acknowledging L3C to date
L3C Quotations:
“The structure of an L3C is designed to create a microenvironment conducive to the simultaneous investment of private and not-for-profit capital.” -Chris Larson in “L3C – The Next Generation of Small Biotech?” October 15, 2008, American Chemical Society.
“The arrival of the L3C potentially is a watershed moment for individuals and organizations that are dedicated to achieving social change,” Cassady Brewer and Michael Rhim.
L3C or B Corporation: Which Legal Structure Best Promotes the Growth of Social Enterprise? Author: Lindsay M. Baghramyan
The three traditional sectors of society, government, business and nonprofit, are being challenged by a new model: social enterprise. This burgeoning fourth sector of society requires its own infrastructure, including distinctive legal models to support its primary objective to combine market and mission. Legal experts and social entrepreneurs have proposed two new legal structures for social enterprise, L3Cs and B Corporations. This paper examines which of these legal entities is best able to maintain an appropriate amount of liquidity, based on the approximate liquidity target model and the organizational slack theory, through access to capital markets.
