Have you heard of L3C's?

Posted by John Abodeely, Jul 09, 2009 1 comment

Often, we’ve had the internal discussions at Americans for the Arts about intrinsic problems of the not-for-profit model. These problems seem intractable because our tax code only allows foundation grants and tax-deductible gifts to flow to not-for-profits.

I wanted to share something I just learned about L3C’s.

A low-profit limited liability company (L3C) is a legal form of business entity in the United States that was created to bridge the gap between non-profit and for-profit investing by providing a structure that facilitates investments in socially beneficial, for-profit ventures while simplifying compliance with Internal Revenue Service rules for "Program Related Investments".  It was first introduced in Vermont in February 2008.


Very cool.

1 responses for Have you heard of L3C's?


July 09, 2009 at 12:17 pm

Hi John,
Thanks for drawing attention to the L3C. I have to correct you, though, on part of your statement. It's not true that "our tax code only allows foundation grants and tax-deductible gifts to flow to not-for-profits." For one thing, there is the whole fiscal sponsorship model, which allows individuals and for-profit companies to receive tax-deductible donations via proxy. A lesser-known fact, however, is that foundations can in fact make gifts to private companies. The only reason it is not done more often is because the legal responsibility falls to the foundation to ensure that the money is used only for its tax-exempt purpose and not for anything else. Most foundations are unwilling to be liable for the misuse of funds by the grantee, and to take on the associated reporting burden, so they simplify things for themselves by adopting a policy of only granting to 501(c)(3)s. However, that's a decision on the part of the foundation, not a policy mandated by law.

Anyway, just thought I'd put that out there - not to say that the L3C isn't a helpful addition, but the 501(c)(3) model is a bit more flexible than commonly believed.

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