Posted by:
Steve Dubb
Effort grows to facilitate program-related investments in social enterprises
In early March 2008, about 530 charity and business leaders gathered in Boston for the 9th annual summit of the Social Enterprise Alliance. One topic discussed at the Summit was a proposal to create a low-profit, limited liability company, or L3C. As discussed previously in this blog, the L3C designation aims 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.
As reported by Nicole Wallace in the Chronicle of Philanthropy, a bill to create this legal structure has gained significant momentum in the state of Vermont. Indeed, Vermont Bill H-775 has already been passed by the Vermont House of Representatives.
According to the Vermont legislation, as passed by the Vermont House of Representatives, to qualify as a L3C or “low-profit limited liability company,” a company would have to satisfy each of the following requirements:
A) The company:
(i) significantly furthers the accomplishment of one or more charitable or educational purposes within the meaning of Section 170(c)(2)(B) of the Internal Revenue Code of 1986, 26 U.S.C. § 170(c)(2)(B); and
(ii) would not have been formed but for the company’s relationship to the accomplishment of charitable or educational purposes.
(B) No significant purpose of the company is the production of income or the appreciation of property; provided, however, that the fact that a person produces significant income or capital appreciation shall not, in the absence of other factors, be conclusive evidence of a significant purpose involving the production of income or the appreciation of property.
(C) No purpose of the company is to accomplish one or more political or legislative purposes within the meaning of Section 170(c)(2)(D) of the Internal Revenue Code of 1986, 26 U.S.C. § 170(c)(2)(D).
Wallace reports that backers are also trying to get legislation passed in Georgia, Michigan, Montana, and North Carolina. Robert M. Lang, Jr., chief executive of the Mary Elizabeth & Gordon B. Mannweiler Foundation in Cross River, N.Y. and a leading advocate of the legislation, notes that if L3C’s become legal in Vermont, “you can be in Idaho and you can form a Vermont L3C and do business in Idaho,” he said, just like Delaware-based corporations operate throughout the United States. Wallace notes that Mr. Lang and other advocates hope that having a designation for social-purpose businesses will encourage foundations to make program-related investments in such ventures.