New Legal Form for Social Enterprises

Illinois recently passed a law that will allow for-profit companies that primarily pursue social enterprise goals to incorporate under a new form: as a a limited-liability, low-profit company or L3C. The "low-profit" terminology means that the pursuit of profit is not the primary function of the company. Here's a description of the form from Gene Takagi's Nonprofit Law Blog and a later post from the same blog on more recent developments. There's a good deal of info about these on the web, especially in blogs.

Rather than relying the sale of goods or services and on donations from foundations and other charitable givers that meet program-related investment rules for giving to for-profit operations, an L3C would be a vehicle for such charitable givers to more easily invest in appealing ideas that have the potential to make a profit. This funding wouldn't be tax deductible, as charitable gifts are, but having an L3C option would help foundations to spend the 5% of endowment that they are required by law to pay out each year. The key idea is that this incentive, and structure, would attract more financial support for such ventures.

In this story, I learned that Vermont, Wyoming, Utah and North Dakota already have L3C laws. Legislation is pending in several other states. In Vermont, more than 60 companies are registered.

- Karol