A couple months ago I added a bunch of new material to my book The Women’s Small Business Start-Up Kit and updated it throughout for a fresh and sparkly 2nd edition which is set for release on April 24. It’s now up for pre-order at Amazon (at the moment all reader reviews are still attached to the 1st edition). I previously posted an excerpt on the subject of health reform under the Affordable Care Act. Here’s another excerpt from the chapter on business structures, on an emerging structure called the low-profit limited liability company (L3C).

There’s a new flavor of LLC on the scene: the low-profit limited liability company, or L3C. An L3C is similar to a nonprofit in that its primary purpose must be to benefit the public. But an L3C is run like a regular profit-making business and is allowed to make a profit as a secondary goal. This type of business structure was born so that charitably oriented LLCs could receive seed money (specifically, “program-related investments,” or PRIs) from large nonprofit foundations, taking advantage of IRS rules that allow foundations to invest in businesses principally formed to advance a charitable purpose.

A small but growing number of states allow L3Cs, including Illinois, Louisiana, Maine, Michigan, North Carolina, Rhode Island, Utah, Vermont, and Wyoming. It has also been adopted by the tribal governments of the Oglala Sioux Tribe and the Crow Indian Nation of Montana. However, because it’s such a new business structure and definitive rulings on various aspects of L3Cs have not yet been issued by the IRS, plenty of questions remain. Keep an ear to the ground as the L3C develops.

Here’s a good explanation of L3Cs by Attorney Emily Chan at Nonprofit Law Blog, and there’s an updated piece here.

Other similar structures are emerging, including benefit corporations (a state-conferred legal structure; currently an option in about seven states), and becoming a Certified B Corp (the business has been assessed and certified to meet sustainability-related criteria by B Lab, a nonprofit). These two structures are quite similar; it’s just that benefit corporations are an actual corporate structure recognized by the state, while the Certified B Corp is a certification conferred by a nonprofit. So if you live in a state that does not recognize benefit corporations, you can still seek to be certified as a Certified B Corp. B Lab tracks state legislative activity and adoptions at its Benefit Corp Information Center.

What both have in common is the following:

  • The corporation has a purpose to create a material positive impact on society and the environment;
  • The corporation is accountable through a fiduciary duty not only to corporate shareholders, but also to workers, community and the environment; and
  • The corporation is run transparently, and must publish public annual reports on overall social and environmental performance against an independent and transparent third-party standard.

For more info, here’s a good article by Priti Ambani at Ecopreneurist. And let me know if you’ve tried and/or structured your business with one of these new forms. Any wrinkles to report? I’d love to know.

 

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