Introduction of L3C (video)

The low-profit, limited liability company, or L3C, is a hybrid of a nonprofit and for-profit organization. More specifically, it is a new type of limited liability company (LLC) designed to attract private investments and philanthropic capital in ventures designed to provide a social benefit. Unlike a standard LLC, the L3C has an explicit primary charitable mission and only a secondary profit concern. But unlike a charity, the L3C is free to distribute the profits, after taxes, to owners or investors.

A principal advantage of the L3C is its qualification as a program related investment (PRI), an investment with a socially beneficial purpose that is consistent with and furthers a foundation’s mission. Because foundations can only directly invest in for-profit ventures qualified as PRIs, many foundations refrain from investing in for-profit ventures due to the uncertainty of whether they would qualify as PRIs or use costly time and resources to acquire a Private Letter Ruling from the IRS to verify that the venture is a valid PRI. An L3C’s operating agreement minimizes this problem by specifically outlining its respective PRI-qualified purpose in being formed, making it easier for foundations to identify social-purpose businesses as well as helping to ensure that their tax-exemptions remain secure.

Additionally, the fiduciary responsibilities of for-profit partners often prevent their participation in a foundation PRI in a for-profit venture. The L3C avoids this common problem through its flexible membership rules which allows partners to structure the L3C and adjust ownership to best fit their unique situations. By addressing these current investment challenges to PRIs, L3Cs are able to attract a greater influx of private capital from various sources of wealth in order to serve their charitable or education goals.

On April 30, 2008, Vermont became the first State to recognize the L3C as an official legal structure. Similar legislation has since been pushed in other States such as Georgia, Michigan, Montana and North Carolina. Although Vermont currently remains the only State to authorize the L3C, it has national applicability because L3Cs formed in Vermont can be used in any State or Territory.

http://digg.com/lbv.php?id=14784235&ord=1

Posted via web from socialbizcoach's posterous