Low-Profit Limited Liability Company
The intent is to encourage social investments rather than merely maximize profit. This entity is encouraged as an investment vehicle via streamlined paperwork and compliance related issues. Namely, the IRS considers such companies to be "program-related investments" which means that non-profits and foundations are allowed to invest in L3Cs.
This allows foundations and charities an important outlet. There are annual minimum distributions which can easily be met via investing in an L3C. This work around provides non-profits the ability to earn a return and meet their objectives in a socially friendly manner.
What's The L3C's Purpose?
As mentioned above, the goal of an L3C is being socially beneficial, not maximizing income. However, income is allowed, which is in stark contrast to "Non-Profit" companies. The entity merges some attributes of a traditional limited liability corporation with some attributes of a non-profit, it also benefits from being able to market itself as a social enterprise. This is because the entity must be driven by its foundational mission, thus providing obvious duties for fiduciaries.
These corporations are intended to make it easier for foundations and other non-profits to invest their money. This is because of the strict rules on such groups. An L3C is considered an acceptable investment vehicle and may also benefit from raising money from private investors.
L3Cs and Foundations/Charities
Foundations such as charities are required to distribute at minimum 5% of their assets. This ensures foundations don't just hoard donations and not bring about the benefits they were intended to. As mentioned above, (PRI) Program Related Investments such as L3Cs, satisfy this obligation and provide the opportunity to make a return.
Eleven states allow L3Cs. They are Vermont, Michigan, Wyoming, Utah, Illinois, Louisiana, Maine, Rhode Island, Navajo Tribe and Oglala Sioux Tribe. North Carolina used to allow them, but has since discontinued their use. Existing corporations in the state may continue to use the designation, though. Not sure this corporate structure is for you? View our page on forming a Wyoming LLC and read about our Wyoming limited liability companies, profit corporations, trusts and other corporate services.
Setting up an entity such as this must be about more than the tax advantages. A charity cannot be successful in its purpose if it is set up as a tax dodge. It should have a legitimate purpose. Embarking upon this path will require at least a great investment of your time and quite possibly money as well.