Low-Profit Limited Liability Companies (L3Cs)

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The L3C, or Low-Profit Limited Liability Company, is a new type of corporate entity that is a cross between a nonprofit and a for-profit corporation. L3Cs are not eligible for tax-exempt treatment by the IRS. Rather, they are intended to be profit-generating entities with charitable and educational (including positive social change) missions as their primary objectives. Building upon the LLC structure, the L3C has thus far been enacted in Vermont (May 2008), Michigan (January 2009), Utah (March 2009), Wyoming (July 2009) and Illinois (Jan 2010). L3C legislation is also being considered in several other states, including Georgia, Louisiana, Maine and Missouri. For more information about the status of L3C legislation please visit: http://www.americansforcommunitydevelopment.org/legislativewatch.html.

The Nevada legislature has not passed any legislation authorizing L3Cs as of July 2011. However, all states must recognize LLCs formed in other states and the L3C is a variant form of an LLC.

L3Cs are similar to LLCs in that they have the liability protection of a corporation, the flexibility of a partnership and membership shares can be sold to raise capital just like common stock. However, unlike the LLC, the L3C must be formed for a charitable or educational purpose, it cannot have a significant goal of producing income or capital appreciation and it may not accomplish political or legislative objectives.

L3Cs are intended to be vehicles which can both attract capital investment from for-profit enterprises and investment by foundations. Nontraditional for-profit investors who are willing to sacrifice market-level returns in exchange for social impact are prime candidates to provide capital investments or loans to L3Cs. Similarly, private foundations that wish to provide support in the form of a loan or equity rather than a grant may find an L3C to be attractive because the enabling legislation is written in such a way as to comply with the IRS “program related investment” or “PRI” regulations, thus eliminating the need for private letter rulings or legal opinions for such investments. PRIs can be attractive to foundations because they count toward its 5% minimum payout requirement, just as if they were grants. But if the investment is successful, the foundation could recapture the full amount of the investment, plus a reasonable rate of return, which it then must pay out again in the form of grants or more PRIs.

Existing nonprofit corporations can utilize the L3C structure in at least two ways. First, if the nonprofit generates enough earned income to qualify as “low profit,” it could reincorporate as a stand-alone L3C. Second, it could establish a subsidiary as an L3C to conduct low-profit earned income activities.

It is too early to tell whether L3Cs will proliferate and whether they will attract significant investments from non-traditional investors and foundations. Some experts have predicted that since PRIs comprise a relatively small amount of foundation grants and capital, the L3C will not succeed in attracting significant funds from foundations and thus this form of organization will not become the preferred vehicle.


Lang, Robert.  “Overview.”  Americans for Community Development.  http://www.americansforcommunitydevelopment.org

Peeler, Heather, “The L3C: A New Tool for Social Enterprise, “Community Wealth Vanguard, Aug. 2007, http://www.communitywealth.com/Newsletter/August%202007/L3C.html

Tozzi, John, “Turning Nonprofits into For-Profits,” Business Week: Small Business Financing (June 15, 2009), http://www.businessweek.com/smallbiz/content/jun2009/sb20090615_940089.htm

“How-to: An Insider’s Look at the L3C and What it Could Mean for you and your Social Enterprise.” Social Earth. http://www.socialearth.org/how-to-an-insider’s-look-at-the-l3c-and-what-it-could-mean-for-you-and-your-social-enterprise

Chang, Emily, L3C-Developments & Resource, Nonprofit Law Blog,, available at http://www.nonprofitlawblog.com/home/2009/03/l3c-developments-resources.html#more 

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