L3C Legal Structure

These days, high-net worth donors are pursuing a wide array of cross-sectoral options to achieve societal betterment. According to a new article from the most recent issue of Community Wealth Ventures, one legal structure being advanced to couple for-profit and non-profit approaches is the LC3. According to the article's author, Heather Peeler:

Robert Lang, CEO of the Mary Elizabeth and Gordon B. Mannweiler Foundation, is leading the charge to establish the Low-Profit Limited Liability Company (L3C). Lang's proposed L3C, a form of Limited Liability Company (LLC), would be a for-profit entity organized to engage in socially beneficial activities. The traditional LLC provides a flexible ownership structure whereby different owners of a single company can receive different economic benefits. Lang’s proposed L3C takes the concept one step further. The L3C’s unique structure would allow foundations to invest by using an alternative to grants—program-related investments (PRIs). It can have different classes of investors—such as individuals, government agencies, nonprofits, and for-profits—with foundations taking the most risk. The L3C’s investment structure would be designed to bring new pools of funds such as pension and endowment investments to bear on problems normally treatable only by nonprofit dollars.

By being a defined entity organized under state laws, the L3C would usually eliminate legal fees and organizational costs associated with PRIs. It would allow the use of the more efficient free enterprise system unburdened by nonprofit regulation. Finally, its financial structure would allow the creation of a saleable product by the financial industry.

According to Peeler, L3C's could also increase the percentage of foundations using PRI's (currently at 5%) by lowering transactional costs.

I'm all for whatever can release more capital to nonprofit endeavors and more innovative approaches to getting that capital to the folks who can use it to great effect.

Here's an opinion piece by Lang from Worth Magazine that also further defines the concept.

Susan Herr

Posted at 10:37 AM, Oct 04, 2007 in Permalink | Comment