When Profit is Not the Only Point

Harrington_J-bioBy Jean Harrington | Many states including Rhode Island, have adopted a hybrid form of entity called a “low profit limited liability company” or “L3C”.  It’s a legal structure created to bridge the gap between non-profit and for-profit investing. In fact, the UK began using a similar structure in 2005, called a Community Interest Company.

The L3C is often a feasible solution for an entrepreneur with a desire to focus on a social purpose, first and foremost, and still preserve the potential for profit.

What types of businesses are L3Cs ? Alternative energy companies, farm co-ops, camps for children, product distribution organizations focusing on a particular group, and conservation companies are among some of the markets that embrace the L3C form of business.

The thought behind these entities is that you can attract private investors looking for a rate of return and, due to revisions to the Tax Code, an L3C can also qualify as a suitable recipient of money from foundations and charitable organizations.  These entities are not tax exempt 501(c)(3) organizations.  Accordingly, donations are not tax deductible.

Rhode Island approved the L3C form of entity in July of 2012 and  data as of January 16, 2016 shows six L3Cs have been organized in Rhode Island.  A recent tally of all L3Cs formed since April 2008 in all states that permit these entities is approximately 1,326.

If you are a socially-minded entrepreneur whose inspiration may benefit from this model, contact  attorney Jean Harrington to learn more.

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