L3Cs - Redundant or Relevant?

I was fortunate enough to get off the wait list right before last week's class; this is my post for last week.

"The Next 4 Billion" mentioned legal hurdles that can arise when trying to work with basic utilities in developing countries. But what about legal hurdles for social entrepreneurs in the United States? After a little bit of sleuthing, I learned about a legal issue that is not so new, but quickly gaining in popularity... identifying companies with social missions as L3Cs. If you'd like to learn more about L3Cs (and milk farms, oddly enough), check out an article posted on CNN.money in February 2010 by clicking on the title of this post.

As described by Malika Zouhali-Warrell in the aforementioned CNN article, an L3C legal status is "intended to make it easier for companies with a social mission to receive investments, including loans and grants, from charitable foundations." Sounds great, huh? Not so fast. There's some concern that this model provides access to nonprofit funding with too few restrictions, and it's uncertain that the IRS will recognize L3Cs as automatically eligible for PRIs (Program-Related Investments, also known as the main reason for a L3C status).

So, how prevalent are L3Cs? Since April 2008, five states and two Indian tribes have signed legislation enabling companies to incorporate as an L3C; at least five other states are considering similar legislation. Do L3Cs sound like a good idea to you? Should Pennsylvania pass legislation allowing companies to incorporate as L3Cs?

-Whitney Coble