L3C: The New Entity on the Block

Posted on August 5, 2010 by Luke Stanfield

The Low-Profit Limited Liability Company (L3C) is the newest entity to be recognized by at least eight states and will probably be available in several others in the near future.  The L3C is a hybrid entity combining the flexibility of LLCs with the social consciousness of charity organizations.  Often non-profit charitable entities are subject to strict organization and tax regulations that many feel can actually hamper charitable and social purposes.  Generally L3Cs must meet the following requirements:

  • The company must “significantly further the accomplishment of one or more charitable or educational purposes,” and would not have been formed but for its relationship to the accomplishment of such purpose(s);
  • No significant purpose of the company is the production of income or the appreciation of property (though the company is permitted to earn a profit); and
  • The company must not be organized “o accomplish any political or legislative purposes.

Groups like Americans for Community Development have high hopes that L3Cs will open the floodgates for potentially billions of dollars in new charitable funding because of the flexible funding structures and potentially prudent investment opportunities.  L3Cs haven't made their way to Texas yet, but if and when they do, they could be a great option for those interested in charitable pursuits. 

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