- Special Projects
- Community Based Projects
A low-profit limited liability company (L3C) is a legal form of business entity in the United States that was created to bridge the gap between non-profit and for-profit investing by providing a structure that facilitates investments in socially beneficial, for-profit ventures while simplifying compliance with Internal Revenue Service rules for program-related investments, a type of investment that private foundations are allowed to make.
An L3C is a for-profit, social enterprise venture that has a stated goal of performing a socially beneficial purpose, not maximizing income. It is a hybrid structure that combines the legal and tax flexibility of a traditional LLC, the social benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise.
The L3C is designed to make it easier for socially oriented businesses to attract investments from foundations and additional money from private investors. Unlike the traditional LLC, the L3C’s articles of organization are required by law to mirror the federal tax standards for program-related investing. A program-related investment (PRI) is one way in which foundations can satisfy their obligation under the Tax Reform Act of 1969 to distribute at least 5% of their assets every year for charitable purposes. While foundations usually meet this requirement through grants, investments in L3Cs and charities that qualify as PRIs can also fulfill the requirement while allowing the foundations to receive a return.
An L3C is established pursuant to the laws of the state in which the entity is formed. To authorize the organization of an L3C, legislation must be passed that amends the state's general limited liability company law. Thus far, legislation has been passed in Illinois, Louisiana, Maine, Michigan, North Carolina, Rhode Island, Utah, Vermont, and Wyoming and the federal jurisdictions of the Crow Indian Nation of Montana and the Oglala Sioux Tribe. Legislation has been written for 26 additional states but has not yet been fully approved.