Posted by:
Steve Dubb
State poised to host new type of socially-oriented company
Efforts to create a new kind of company, known as a low-profit limited liability company or L3C bore fruit when Governor Jim Douglas (R) signed into law Vermont bill H-775 on April 30th. The full text of the law as passed is here. As discussed previously in this blog (see also this previous posting), the legislation creates a new kind of company that would be for-profit, but would also pursue a charitable purpose, as determined by the IRS. Unlike a nonprofit, an L3C could earn profits and would pay taxes on earnings (or, if set up as partnership, the partners would pay taxes on their individual returns). However, because an L3C has a social purpose, it would be eligible to receive low-interest foundation loans (better known as program-related investments).
A Burlington Free Press article quotes Robert Lang, CEO of the New York-based Mary Elizabeth & Gordon B. Mannweiler Foundation and founder of Americans for Community Development, a group set up to advocate for the law, as saying that the two main goals of the legislation are:
1) To give private foundations the opportunity to have a modest return on an investment and the potential to recoup the funds—unlike a one-time disbursement of money through a grant.
2) To give low-profit companies that have socially responsible goals access to financing by broadening the scope of investors to include private foundations, governments and independent investors.
Tim Storrow, executive director for the Montpelier (Vermont)-based Castanea Foundation Inc., said the legislation will help “facilitate the flow of philanthropic investment capital into socially beneficial enterprises.”
As explained in the frequently-asked questions section of the Americans for Community Development website, their vision is that L3C companies would raise three different types of capital—the highest risk money would be foundation program-related investments, a middle tier might aim to attract socially responsible investment capital, and a third tier would be composed of market-rate financing.
According to Deputy Secretary of State Bill Dalton, it will cost Vermont companies $75 to file as an L3C and those located elsewhere, $100, not including the fees generated by filing annual reports.
For more information, see also this recent article in the Chronicle of Philanthropy.