Since 2009, about nine states have created a legal business
entity called a low-profit limited liability company (L3C). L3Cs merge the
concepts of for-profit and non-profit. They provide social benefit in a
for-profit manner that also encourages investing from the private and
philanthropic worlds.
L3Cs are in compliance with the standards for program-related
investments (PRIs), which are the types of investments foundations are allowed
to make. Under the Tax Reform Act of 1969, foundations are required to give 5%
of their assets each year. Rather than give all of their money in the form of
grants, foundations now have an investing option that produces a return. L3Cs
may also be attractive to the private sector as an opportunity for return and
social good.
L3Cs and the corresponding ‘program-related investments’
represent some recent creations in public policy that support both business and
social cause. While these policies are moving forward and allow more
flexibility for organizations, they are organized on a state-by-state basis.
These policies are certainly not nationwide or common. Many social entrepreneurs
and innovators feel restricted by the law.
Personally, I am not at all fluent in public policy so I
wonder why there is such slow movement in these areas. What will it take to
spread the legality of L3Cs and similar designations? Citizens want them, they
provide benefit to society, and they just makes sense. CEO Mitch Schneider of
Kauzu, an L3C, stated “But we don’t think helping people and making money are
mutually exclusive. In fact, we believe helping people is the best way to make
money.”
Resources:
How Social Entrepreneurship is changing Chicago
Low-profit limited liability company
interSector Partners, L3C – Tally
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