Friday, August 5, 2011

What is an L3C?

Social entrepreneurs and new start-up companies are taking advantage of a new legal entity: the L3C (low-profit limited liability company).   

An L3C functions much like an LLC and any other for-profit company except that earning a profit takes a back seat to providing a social benefit to society.  This legally allows the managers of the L3C to achieve their organization’s social mission without violating duties to the company’s investors in the event that that social mission does not “maximize profits” in a traditional sense.

Another benefit of forming an L3C is that it may attract investment from foundations.  Foundations are non-profit organizations that, under certain circumstances, can  invest in for-profit companies.  However, these investments, called Program Related Investments, require that the investment further the public benefit purpose of the foundation.  For example a foundation which  has a purpose to educate at risk youth could invest in an  L3C whose mission, through its for-profit venture,  is also to provide education to at risk youth.  Not only does the L3C benefit by having a like-minded investor, the foundation has the opportunity to increase their funds through receiving a return on their investment. 

The  L3C, while still new,  has the potential to enhance the business world with a fresh and sustainable approach to doing business as well as the potential to increase the amount of money available to traditional foundations. 

If you would like more information about setting up an L3C or a social benefit company please contact my law office

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