The state L3C legislation does not create a new opportunity for foundations to make PRIs instead of grants. Foundations
already utilize PRIs in LLCs, partnerships and corporations to accomplish charitable goals. However, these entities may
not—and, under state law, generally are not required to—articulate a commitment to charitable purposes in their governing
documents. By enacting legislation that recognizes the L3C, states are creating a business form with an identifiable
designation—i.e., “L3C.” This designation signals to state and federal regulators that the entity is organized and operated to
accomplish charitable or educational purposes, and regulators may implement programs or mechanisms to monitor whether
these requirements are being met. Indeed, it is virtually impossible for regulators to identify taxable entities operating under a
charitable purpose unless the organizations have been formed as L3C's. Thus, the state L3C legislation provides a new way
for the public, the IRS, and state charity regulators to identify more easily organizations that seek charitable funding and
purport to do charitable work.
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