From the issue dated November 12, 2009
Dozens of Companies Are Sprouting With the Same Goal: Doing Good
By Grant Williams
In the bad economy, many companies struggle to make any profit at all. But now dozens of companies - many seeking the help of grant makers - are getting started with a deliberate goal that making money is a secondary concern. The primary aim is to offer social benefits, or as the grant maker who helped coin the idea says, to create "the for-profit with a nonprofit soul."
Eighteen months ago, Vermont became the first state to pass a law to give such entities their own legal designation, known as low-profit limited-liability company, or L3C. Five other states have since followed suit. And now supporters of the idea are pressing Congress to pass legislation to help these companies succeed.
Robert M. Lang Jr., chief executive of the Mary Elizabeth & Gordon B. Mannweiler Foundation, in Cross River, N.Y., who was a leader in devising the L3C concept, says the plan was designed to make it easier for socially oriented businesses to attract investments from foundations and additional money from private investors.
Any expectations that the new designation would trigger a rapid increase in foundations making loans or providing other money to such companies have yet to be realized.
But many observers say it is still too early to judge whether L3C's will emerge as the next big thing. In fact, they say a flurry of activity continues among entrepreneurs seeking to set up such companies and foundations that want to help them. They also say the poor economy and stock-market decline have hindered efforts to secure foundation investors.
So far more than 60 companies have registered in Vermont - some of them operating in other states.
The concept has also been enacted into law in Illinois (where the statute takes effect on January 1), Michigan, North Dakota, Utah, and Wyoming and by the Indian Crow nation and Oglala Sioux Tribe.
Many of the L3C's registered in Vermont appear to be set up by single individuals; others that have registered don't seem to be operating yet.
Their names suggest they are, or expect to be, involved in fields that include the environment, health, prevention of animal cruelty, and consulting.
Among the companies using the new social-mission designation:
Ten small dairy farmers who formed an organic dairy enterprise called Maine's Own Organic Milk Company, L3C, or MOOMilkCo, after a milk-processing company in New England, unexpectedly withdrew from contracts with them.
An educational charity in Texas created an L3C to "strengthen and nurture the relationship between single parents and their children" through a Web site.
An educator and writer in Vermont formed an L3C, called Radiant Hen Publishing, with three other owners to produce books for children and adults that "raise awareness of sustainable agriculture and our impact on the environment" while providing "reasonable support and compensation" to all who work with it.
'So Much Energy'
Marc J. Lane, a Chicago lawyer who helped push for the L3C legislation in Illinois, says his office is in the midst of helping start as many as 50 L3C's around the country and, in separate transactions, is working with about 20 foundations that are interested in making so-called program-related investments in L3C's.
"There's so much energy behind this movement," says Mr. Lane. "It's a very compelling concept and it's really catching the imagination of lots of foundations around the country."
Mr. Lane says that a number of his family-foundation clients are expressing interest in L3C's "as a way to introduce their children to opportunities to involve themselves as agents of social change."
Mr. Lang, of the Mannweiler Foundation, says L3C's will need several years to really take off. He organized an L3C that helps others set up and finance L3C's. "People will begin to understand that, if a company says it is an L3C, it's sort of a kinder, gentler thing," he says. "The branding is going to make a difference for a lot of people. The public will understand it."
Among those with high hopes for L3C's are the Maine farmers who created Maine's Own Organic Milk Company, L3C, in Augusta, which they own with the Maine Farm Bureau and the Maine Organic Farmers and Gardeners Association. The Maine Department of Agriculture was also a key player in establishing the company.
A Maine milk processor and a Maine distributor have agreed to help the farmers and become business investors in the L3C, says Paul O. Dillon, a lawyer in Corinth, Me., who came upon the L3C idea and advised the parties.
While the organic milk enterprise is not expected to make a lot of money, the farmers will get 90 percent of profits, which is expected to be enough to keep them in business, Mr. Dillon says.
"The company is now aggressively in talks with foundations and other nonprofit sources of funding," says Mr. Dillon. "They are trying to fully take advantage of the L3C status in making this project work to save the organic dairy farms."
He adds: "With the L3C, you can get the foundations who want to make those program-related investments and you can get socially conscious business investors who are willing to either wait for the return or take much less in return."
The stakes are high for these farmers in a state so hard hit by economic bad times.
Mr. Dillon also assisted in the creation of another L3C called Farm Fresh for ME, in Bangor. The company is owned by a charity, Heart of Maine Resource Conservation & Development Area, that works with rural communities in central Maine on social, economic, and environmental matters.
Farm Fresh for ME will help connect new neighborhood "consumer buying clubs" with family farmers offering produce through an online ordering system. The Walmart Foundation recently provided a $125,000 grant to Heart of Maine to help Farm Fresh for ME establish local distribution sites, set up refrigeration and storage facilities, and educate people about setting up the clubs.
Heart of Maine is now looking for money from other foundations and sources, says Mr. Dillon.
"Even though obviously Heart of Maine is not in this to make a bazillion dollars, they need to be able to run it on a business model," says Mr. Dillon. "And that's where the low-profit concept comes in and lets them do that. By creating Farm Fresh for ME, they have the best of both worlds. They can hook producers with consumers, thereby generating income for the family farm so that those farms can stay in existence as working farms and real estate."
Not Well Known
Some new L3C's are finding that foundations are in the dark about the possibilities presented by this new form of company.
The educational charity in Texas - ParentRise, in Austin - started an L3C of the same name and so far the company has not found such funds.
"We have not been able to benefit from the L3C portion of our organization," says Loretta Maase, the group's chief executive officer. "Foundations in Texas are still unaware of this, and there needs to be a public-awareness effort to get foundations to even consider listening."
She adds: "Foundations don't understand how the whole thing works, and they are not likely to explore it on their own right now until there is an incentive for them to do so."
Danae Clark, who started Allegheny Greenworks, L3C, in Pittsburgh, to provide consulting services to nonprofit groups and companies on "green enterprises and program development," has had a similar experience, with foundations telling her they have cut back on program-related investments because of the recession.
"And they hadn't dealt with L3C's yet, so they didn't want to be the first to jump in. They wanted to learn more," she says. "It's a little hard being on the cutting edge here."