A low-profit limited liability company (L3C) is a hybrid structure legal entity with characteristics of both for-profit and non-profit entities. The most notable difference between L3Cs and LLCs is that L3Cs are required to have a socially beneficial mission as their primary objective. This structure lends itself to organizations with a social mission as the primary objective and a secondary objective of profit generation, as well as those looking to pursue the path of social enterprise.
An L3C must significantly further the accomplishment of one or more charitable purposes. The production of income and appreciation of property cannot be a significant purpose of the L3C; and an L3C cannot seek to accomplish any political or legislative purposes.
An L3C has the same limited liability protection profile as an LLC
The lifetime or duration of an L3C usually extends beyond the life of its members because it takes on its own legal personhood. Thus, the death or withdrawal of a member does not impact the existence of the L3C.
Investors in states with statutes may be wary of the model as it’s uncommon. Philanthropists may be reluctant to support a profit-making enterprise. Conventional financiers may be unwilling to direct their limited capital towards an entity that prioritizes a social mission.
Investors may be uncomfortable that L3Cs lack a standard structure for reporting, oversight, and transparency, in contrast to nonprofits, which submit publicly accessible Form 990s on an annual basis.
Only recognized in the following states: Illinois, Michigan, North Dakota, Kansas, Louisiana, Maine, Rhode Island, Utah, Vermont, Wyoming, The federal jurisdictions of the Crow Indian Nation of Montana, the Oglala Sioux Tribe, the Navajo Indian Nation and Puerto Rico
Though the IRS has allowed for certain L3Cs to exist as legal entities, it has not yet confirmed that L3Cs as a whole can be official recipients of foundation dollars, so there is the risk of donor hesitation to invest until that happens.
No particular legal requirements for governance .
No particular legal requirement for worker equity design.
No legal requirements for increased transparency.