The L3C was created with several concepts in mind:
- The L3C embodies the operating efficiencies of a for-profit company along with a reduced regulatory structure. As an LLC, it can bring together foundations, trusts, endowment funds, pension funds, individuals, corporations, other for-profits and government entities into an organization designed to achieve social objectives while also operating according to for-profit metrics.
- The L3C specifically complies with IRS regulations regarding Program Related Investments (PRIs). PRIs are IRS sanctioned investments made by foundations, often into for-profit business ventures, to support charitable activities, which may involve the potential return of capital within an established period of time. Foundations may buy ownership shares, make loans to, or otherwise financially interact with the L3C, using all or part of that portion of its assets, which would normally be given out annually as grants.
- Under L3C status, a foundation retains ownership and management rights of the L3C while possibly recovering its principal investment and potentially realizing a capital gain and/or a portion of the income.
- The L3C facilitates tranching or layering. The keys to an L3C’s operation is its use of low-cost foundation capital in a high risk tranche of its structure and its ability to allocate risk and reward unevenly over a number of investors, thus ensuring some a very safe investment with market return. As is appropriate under the PRI structure, foundations would normally be expected to assume the highest risk at very low return, making the rest of the investment far more secure.
- The L3C creates a desirable climate for the investment of private capital. Because of its tranching structure, an L3C could be partially funded by money intended for only prudent investment, such as state pension funds. This opens the door to trillions of dollars not currently available for socially beneficial investment.
- The L3C was built on the LLC structure in order to provide the flexibility of membership and the organization needed to cover a wide variety of social enterprise situations. It also simplifies the legislative process, since it does not create a new structure but merely amends the definition section of most state llc acts. That equates to 15+ years of legislation and litigation that is behind the llc, intact behind the L3C.
- The L3C is a brand that represents the unique symbol of a for profit company organized to achieve socially beneficial results. The simplicity and socially compelling mission will make the concepts easily understood and increasingly used.
Possible uses of an L3C:
- Purchase an empty furniture factory, rehabilitate and re-equip it to be “lean and green” and lease it at very low rates to a furniture company otherwise struggling in today’s globally competitive environment. Hundreds of jobs could be saved or created, making the company an engine of economic development.
- Convert—wholly or partially–nonprofit museums, concert halls, symphonies, recreational facilities and the hundreds of thousands of nonprofits that perform contracted service for the government, with the government as their primary source of revenue
- Create affordable or elderly housing either in a new building or through the rehabilitation of an old one.
- Act as an incubator for development of new drugs, alternative energy or a new business in an economically depressed area.
- Create a hyper local community based newspaper.
- As a school.
- Use as a potential vehicle for any definable revenue stream generated for a socially beneficial purpose.