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This is an archived post from our old blog. It's here for the sake of posterity (and to keep the search engines happy). Our new blog can be found at http://blog.fracturedatlas.org.

I Want My L3C

Philanthropy.com reports on a proposal for a new kind of for-profit / non-profit hybrid entity: the L3C:

[T]he low-profit, limited liability company, or L3C is designed to increase the number of program-related investments, or PRI’s, that foundations make in social-purpose businesses by making those enterprises easier to find. Proponents hope that foundation investment in those ventures would, in turn, would spur an influx of private capital.

For those of you who aren't tax lawyers, the key issue here is that private foundations are required by law to distribute at least 5% of their assets annually. The vast majority of the time this is done exclusively through grants to public charities. However a little-used option exists whereby foundations can make program-related investments - investments that they expect to make a return on - which count towards the 5% threshold. The L3C is designed to promote and facilitate this process.

Americans for Community Development, the organization which is most actively promoting the L3C concept, has a great F.A.Q. that explains the concept in greater depth and provides some down-to-earth examples.

The line between for-profit and non-profit enterprise has been getting blurrier and blurrier. Increasingly we're seeing charities graded by independent agencies on their financial performance and efficiency as if they were stocks to invest in. At the same time, for-profit corporations are under mounting pressure to exercise "corporate social responsibility" and soften the ruthless pursuit of profits with concern for the greater social good. It seems to me that the L3C is a logical and welcome next step.