WHAT IS THE L3C?

Solving social problems with for profit solutions

It is the for profit with the nonprofit soul. It is a for profit organized to perform a social mission which must come before making a profit. A type of LLC, the L3C (Low-Profit Limited Liability Company), is able to bring together a mix of foundations, trusts, DAFs, endowments, pension plans, individuals, corporations, nonprofits, governmental entities and others in order to achieve social objectives while operating according to for-profit metrics. Just like any LLC, an L3C has the liability protection of a corporation and the flexibility of a partnership.

Check Out The Latest

Senator Ramon Luis Nieves and the Commonwealth of Puerto Rico Passes Law 233-2015 – L3Cs Now a Legal Entity

Press Release:

Americans for Community Development congratulates Senator Ramón Luis Nieves and the Commonwealth of Puerto Rico on passage of Law 233-2015 adding Puerto Rico to the legal entities within the United States authorized to organize businesses as L3Cs. We know the last year has presented Puerto Rico with some unique challenges and we hope individuals and organizations in Puerto Rico will be able to use the tools contained in this bill to relieve some of the issues and help move Puerto Rico and its residents forward.

Anyone wishing more information on the power of the L3C should consult our website http://americansforcommunitydevelopment.org/ for more information.

Contact: Janice Lang, 914-248-8443

Check back to this space for L3C events.

If you are an L3C and you wish us to post one of your events, please send the information including HTML links to info@americansforcommunitydevelopment.org

SLAM– Social Lending & Asset Management, A New Look at Social Impact Investing

Jack Howard Ackerman has a new concept for the field of social impact investing. He believes the first step is recognition of the potential for the creation of products which should become part of the maintream of investing and the recognition of their role in creating a better society.

DAFs, L3Cs – Tools of Social Impact Investing

The use of for profit entities financed by both nonprofit and for-profit dollars provide a nongovernmental free enterprise way to solve many social issues while adding to the wealth of the populace rather than depleting government funds and herald a bright future.

Check under Resources for all the papers on the L3C that are available.

These are the most recent papers relevant to the L3C that we have. If you have any you wish to submit for inclusion, please send the information including HTML links to info@americansforcommunitydevelopment.org

Gardner, Peters Introduce Legislation (S2313) to Encourage Rural Investment

Senators Cory Gardner (R-CO) & Gary Peters (D-MI) introduced on November 19th the Philanthropic Facilitation Act (PFA). This legislation reforms the approval process for charitable investments so philanthropic organizations can more easily invest in community improvement & job creation, boosting economic growth in both rural & urban areas.

Endless Sky L3C http://endlessskyl3c.org/ – See what Endless Sky is up to.

If you have an exciting story to tell please send it to us at info@americansforcommunitydevelopment.org

Welcome to the new Americans
for Community Development

Like most movements, the L3C Movement, draws all kinds of people and ideas. The passage of the first Low Profit Limited Liability state legislation in Vermont in 2008 was the legal beginning, but had years of intellectual and financial investment behind it. New collaborators excited by the vision of for-profit businesses with social benefit as the driving momentum, worked to pass L3C legislation in additional states and Native American tribes. And federal L3C legislation moves forward as well.

Americans for Community Development began as the professional organization to promote the L3C Movement and assist the entrepreneurs finding this new business form as an opportunity to turn their passion to impact social change into a sustainable business.

As with any substantial new approach, there are the visionaries who understand and embrace the hard work of building a business. And there are already multiple examples of L3C s, not only in the U. S., but all over the world, that are already turning great ideas into businesses worthy of investment and growth because of the way that their founders are tackling social need.

Innovations draw naysayers as well, and the L3C Movement is not without those. But there is opportunity in debate, sharpening already great innovation with new ideas and approaches to social need solutions with financial security.

We invite you to be a part of the growing L3C Movement, to share your ideas and to join us as we work with entrepreneurs of large and small operations, leaders who know that it takes all of us investing to grow the L3C.

Karen Woods, Executive Director

Robert M. Lang

Note from the Creator of the L3C

The world of social enterprise is growing daily. I define a social enterprise as one, which combines a revenue stream with a charitable or social purpose and uses the revenue stream to further the social purpose. In my mind, the best social enterprises are ones which earn a small profit. With a small profit in hand, the owners and managers can stay focused on the mission and not fund raising. I always felt that once an organization could make its own way in the business world there was no need to be burdened by the rules and regulations of the nonprofit world. To straddle that middle zone between the pure for profit business and the nonprofit, I created the L3C - the Low-profit Limited Liability Company.

The LLC or Limited Liability Company form of organization is the most popular one used today. It provides all the liability protection of the corporation with the flexibility of a partnership. So I made theL3C a subset of the LLC form of organization. The name was selected to denote an organization, which while able to earn a profit should put its primary focus on furthering a charitable mission and because it was supporting one or more causes that normally were not likely to earn big profit, its low profit nature was highlighted. I also wanted a distinction for branding purposes that made it clear that the L3C was an organization that put mission before profit.

To be sure anyone dealing with an L3C could trust that it was in fact putting mission before profit, the attorney I hired to write the actual state L3C laws for me, Marcus Owens of Loeb & Loeb LLP, used the exact language contained in the federal code relevant to PRIs (Program Related Investments) meaning it significantly furthers the accomplishment of purposes set forth in Section 170(c)(2)(B) of the Internal Revenue Code of 1986, 26 U.S.C. § 170(c)(2)(B), and this was no accident. I realized that if L3C s were to operate as for profit businesses they would need to be capitalized like a for profit business. But the venture capitalists who usually provide the start up capital for new businesses are purely profit oriented. They want to maximize total financial return. L3C s on the other hand are about maximizing social return. So the venture capitalists for the L3C have to be ones who want to maximize total social return before profit. Two groups that can do so using dollars that would normally be allocated to nonprofit purposes are foundations and DAFs (Donor Advised Funds). The federal regulations relevant to PRIs were specifically written to describe the conditions under which a foundation could invest in a for profit if it was furthering a charitable mission and DAFs generally follow the rules for foundations.

We realized that many L3Cs would be started by individuals who, like those creating ordinary LLCs, were not oriented towards the formal corporate governance of a corporation. Further they might want to bring in as partners individuals and organizations of many types and stripes and needed a governance form with great flexibility. The LLC model also fits this requirement. The basic governance structure of the LLC and hence the L3C is something called an operating agreement. The members of the L3C, as the owners are called, create the operating agreement as a contract amongst themselves spelling out all the terms and conditions under which they will organize the business. As one of our team members, Sandy Davies of PKF O'Connor Davies likes to say, the operating agreement begins with a blank piece of paper and a pencil.

Have fun, do good, and let us know what your L3C is all about. We will happily publicize your organization on this website.

L3Cs and the IRS

Use L3Cs to create a brighter future.

We constantly read papers about the L3C or get inquiries regarding the L3C and the IRS. They usually state in some manner that if or when the IRS rules on the L3C everything will be better. We hate to disillusion anyone but the IRS is not going to ever rule on the blanket acceptability of the L3C as an entity. They are empowered by statue to rule on each individual program related investment (PRI) on a case by case basis after the PRI has been made and, in most cases, reported on a 990PF by the foundation that makes the PRI. The IRS may also issue a private letter ruling (PLR) in advance, if so requested by the foundation, at considerable cost and time. But the PLR is applicable only to that specific case. The IRS has no preference positive or negative, as to business organizational structure. They are interested only in that the resulting structure uses the charitable invested dollars to further an allowable exempt purpose. Gates can make a PRI to Pfizer. Pfizer only need use that portion of its capital that it gets from Gates for the purpose specified, it does not mean all Pfizer activities must be charitable. The IRS has issued PLRs approving PRIs made to LLCs and the Taxation Section of the ABA has taken note of this to reason that the IRS by extension has no objection to the L3C being used for charitabl

The IRS received a document from the Taxation Section over a year ago that essentially included this statement and has not objected. The IRS only a few months ago issued a raft of new examples of how PRIs might be used. Many of them would fit very well in an L3C structure but again it is important to note that the IRS is structure agnostic. They only want to insure that the recipient organization uses the money for an acceptable exempt purpose and holds the investing foundation responsible for monitoring compliance.

Our hope is that after some significant number of PRIs to L3Cs have been made all parties will recognize the L3C structure, because of its organization, requires that the company devote itself to fulfillment of one or more charitable purposes. In doing so it eliminates many of the questions over the structure and intention of the company while creating legal framework and fiduciary responsibility for the company to carry out the exempt purpose. The result should be a substantial reduction in transactional costs and a transparency that reduces oversight and monitoring costs. Because of it’s "branding," the designation should become well known to the public and actually reduce the possibilities of fraud or misrepresentation. Given the extensive IRS regulations and examples of use of PRIs making a PRI to an L3C should not be rocket science. It is merely a matter of coloring within the lines and the lines are well defined.

We constantly read papers about the L3C or get inquiries regarding the L3C and the IRS. They usually state in some manner that if or when the IRS rules on the L3C everything will be better. We hate to disillusion anyone but the IRS is not going to ever rule on the blanket acceptability of the L3C as an entity. They are empowered by statue to rule on each individual program related investment (PRI) on a case by case basis after the PRI has been made and, in most cases, reported on a 990PF by the foundation that makes the PRI. The IRS may also issue a private letter ruling (PLR) in advance, if so requested by the foundation, at considerable cost and time. But the PLR is applicable only to that specific case. The IRS has no preference positive or negative, as to business organizational structure. They are interested only in that the resulting structure uses the charitable invested dollars to further an allowable exempt purpose. Gates can make a PRI to Pfizer. Pfizer only need use that portion of its capital that it gets from Gates for the purpose specified, it does not mean all Pfizer activities must be charitable. The IRS has issued PLRs approving PRIs made to LLCs and the Taxation Section of the ABA has taken note of this to reason that the IRS by extension has no objection to the L3C being used for charitabl

The IRS received a document from the Taxation Section over a year ago that essentially included this statement and has not objected. The IRS only a few months ago issued a raft of new examples of how PRIs might be used. Many of them would fit very well in an L3C structure but again it is important to note that the IRS is structure agnostic. They only want to insure that the recipient organization uses the money for an acceptable exempt purpose and holds the investing foundation responsible for monitoring compliance.

Our hope is that after some significant number of PRIs to L3Cs have been made all parties will recognize the L3C structure, because of its organization, requires that the company devote itself to fulfillment of one or more charitable purposes. In doing so it eliminates many of the questions over the structure and intention of the company while creating legal framework and fiduciary responsibility for the company to carry out the exempt purpose. The result should be a substantial reduction in transactional costs and a transparency that reduces oversight and monitoring costs. Because of it’s "branding," the designation should become well known to the public and actually reduce the possibilities of fraud or misrepresentation. Given the extensive IRS regulations and examples of use of PRIs making a PRI to an L3C should not be rocket science. It is merely a matter of coloring within the lines and the lines are well defined.