L3C and B-Corps

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Anyone who is at all active in the Triangle business community knows we are a breeding ground for social enterprise – companies that are formed to achieve a social purpose as well as make a living for the founders. Social entrepreneurs have two cutting edge resources to available to them in North Carolina — the L3C and the B corporation. I was quoted today in an article in the Triangle Business Journal about low-profit limited liability companies, known as L3Cs.

L3Cs are limited liability companies that have both a profit-purpose and a charitable or education purpose. They were approved by the legislature on August 1, 2010. About a dozen have been formed to date here. They are intended to attract investment and funding sources that may not be available to traditional for-profit entities.

Proponents would like the L3C to become the entity of choice for “program-related investments” (known also as PRI) from private foundations. Private foundations are required by the IRS to distribute a percentage of their funds each year, either through grants, loans or other investments for mission-related activities (i.e., program-related investments). Few private foundations make loans or investments because it is cumbersome and regulation-heavy. It is easier to give outright grants. Because the L3C authorizing statutes contain certain PRI language from the Internal Revenue Code, proponents hope private foundations will begin considering funding mixed use for-profit/charitable projects by investing in L3Cs. They are lobbying to get federal tax recognition for the PRI investments in L3Cs.

Another cutting edge social enterprise concept is the B-Corporation (“B” standing for Benefit).

Please see full article below for more information.

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Published In: Business Organization Updates, Finance & Banking Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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