the best features of a for-profit LLC with the socially beneficial
aspects of a nonprofit. It is the for-profit with a nonprofit soul.
The L3C was created for several purposes:
• It 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.
• The L3C embodies the operating efficiencies of a for-profit 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.
• Under L3C status, a foundation and its partner organizations retain ownership and management rights of the L3C while possibly recovering its principal investment and potentially realizing a capital gain.
• Facilitates tranching or layering. The central premise of an L3C's operation is its use of low-cost capital in high risk ventures 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 could assume the top risk making the rest of the investment far more secure.
• 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 prudent investment only such as state pension funds. This opens the door to trillions of dollars not currently available for socially beneficial investment.
An L3C could, for example, buy an empty furniture factory in , 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 competitive environment. Hundreds of jobs could be saved or created making the company an engine of economic development.
The Mannweiler Foundation has been approached by one group seeking to convert an existing food bank food processing facility into one that would also process and pack locally grown produce for a high end retail line, the profits from which could help pay food bank operating expenses. Combined with other unique aspects of the program the L3C that would be formed would have the state, the food bank, one or more foundations, and outside investors as members of the LLC.
Additionally, the L3C could enhance the nonprofit structure for museums, concert halls, symphonies, recreational facilities and the hundreds of thousands of nonprofits that perform service for the government under contract, with the government as their primary source of revenue. As long as there is a definable revenue stream; the L3C is a potential vehicle.
* low-profit limited liability company