Low-Profit Limited Liability Company (L³C)

Sometimes all government needs to do is get out of the way and let businesses and nonprofits partner up. Increasingly, nonprofits are seizing the power of market-based strategies to pursue sustainable social innovation and promote positive social change. Their best opportunity to do this is hidden in plain view in the Internal Revenue Code.

Foundations earn their tax benefits when they serve the public by distributing at least five percent of their assets to social programs every year - or by making socially beneficial "program-related investments" of five percent or more of their assets every year. Program-related investments are those that further a foundation's tax-exempt activities and wouldn't have been made if profit were the sole reason to invest. And therein lies the opportunity.

The "low-profit limited liability company" (L3C) is a new, hybrid business form which can leverage foundations' program-related investments to access trillions of dollars of market-driven capital for ventures with modest financial prospects, but the possibility of major social impact.

An L3C can have different classes of investors - - individuals, nonprofits, for-profits, and even government agencies. But foundations, primarily seeking social payoffs, take the lion's share of economic risk yet content themselves with below-market financial returns. No wonder for-profit investors, seeing the risk-reward tradeoff shifted dramatically in their favor, eagerly commit their capital and expertise to investments they would otherwise reject out of hand.

We are recognized as a national leader in the development of L3Cs and provide assistance in:

Evaluating the feasibility of social-purpose ventures
Rendering opinions of counsel in support of Program Related Investments (PRI)
Comprehensive business planning
Satisfying Federal and state registration and regulatory compliance obligations
Selecting the optimal business structure
Developing and negotiating operating agreements
Mitigating the tax risks associated with private benefit/inurement, lobbying, political
campaign activity and unrelated business income
Avoiding the legal and tax traps associated with sponsorships, endorsements and
cause-related marketing
Addressing fiduciary, governance and reporting issues
Linking for-profits and nonprofits
Negotiating and documenting financing transactions
Effectively pursuing the legal and financial opportunities of venture philanthropy.

Marc Lane is an innovator in helping social enterprises and social entrepreneurs leverage capital to maximize financial results while driving positive social change. He designed and teaches the Social Entreprise course at Northwestern University School of Law where he is an Adjunct Professor of Law. He is the pioneer behind the Advocacy Investing approach to mission-related investing (http://www.advocacyinvesting.com/). A Director of Social Enterprise Alliance, the national association of enterprising nonprofits and social-purpose businesses, he spearheaded the launch of its Chicago chapter, which he serves as President and a Director. And he is the force behind Illinois' L3C legislation, authorizing the new hybrid business form which can leverage foundations' program-related investments to access trillions of dollars of market-driven capital for ventures with modest financial prospects, but the possibility of major social impact.

Audio presentations about L3Cs
Information in the following audio recordings has not been updated since their respective production date, and its accuracy and comprehensiveness cannot be guaranteed. Nothing contained herein shall be construed as legal, financial or investment advice. Consultation with a professional is strongly recommended before implementing any of the ideas discussed herein. Any tax information contained herein is not intended or written to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on your or any other person. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice).

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