April 16, 2009 | Read Time: 2 minutes
Five states and one Indian nation have passed legislation recognizing a new type of business that puts its social goals ahead of making money.
In the year since Vermont became the first state to recognize the low-profit limited-liability company, or L3C, Michigan, North Dakota, Wyoming, and Utah have all followed suit, as has the Indian Crow nation.
The new for-profit designation is designed to make it easier for socially oriented businesses to attract program-related investments from foundations and additional money from private investors.
Too often, foundations feel like they have to go through the lengthy and expensive process of getting a private-letter ruling from the Internal Revenue Service each time they want to make a program-related investment in a for-profit business that has a social mission, says Robert M. Lang, Jr., who developed the new designation and is leading the effort to promote it. He is also chief executive of the Mary Elizabeth & Gordon B. Mannweiler Foundation, in Cross River, N.Y.
In time, he hopes that the L3C designation will become a recognized “brand” that allows foundations to feel comfortable making a program-related investment without a private-letter ruling.
Mr. Lang and other proponents say that businesses that operate in a state that has not passed L3C legislation can seek the designation in one of the states that has.
Because the L3C designation is a new type of limited-liability company, businesses that operate as an L3C will have to follow all of the regulations that apply to an LLC.
Regulations for limited-liability companies vary from state to state, and Mr. Lang advises businesses that are seeking the L3C designation in another state to select the state with an L3C designation whose LLC law is most compatible with their home state’s LLC law.
Says Mr. Lang: “That’s how you decide between Utah and Vermont and Michigan.”
