Vermont House of Representatives Passes “Low Profit, Limited Liability Company” or “L3C” Act

What is a “low profit, limited liability company”?  According to Americans for Community Development (ACD):

The L3C is a new form of limited liability company (LLC) that combines the best features of the LLC with the socially beneficial focus of a nonprofit.  It uses the concept of Program Related Investment to bring together foundations, businesses and other investors to make important investments that otherwise would not occur. 

ACD’s home page (linked to above) has a lot more stuff about L3C’s.  The group has been successful in getting legislation passed in Vermont recognizing L3C’s.  The legislation requires that the L3C be organized primarily for charitable or educational purposes and not have as a “significant purpose” the pursuit of profit.  According to a March 12, 2008 article in the Chronicle of Philanthropy, an L3C would allow private foundations to immediately recognize entities, investments in which would automatically qualify as “program related investments” as that term is used in IRC 4944(c).  It looks to me as though an L3C is essentially a joint venture between a private foundation and for profit investors for a specific charitable purpose.  Thus, the L3C would be tax exempt if it elected partnership status, see IRC 701, but profits would be taxed to the partners (though presumably not to the private foundation, since any profit would be derived from a program related investment — i.e., not an unrelated activity).  Under 512(c), the LLC’s activities would be attributable to the private foundation.  ACD has an interesting powerpoint presentation online touting the benefits of L3C’s.

dkj