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Abstract

Between 2008 and 2012, three new business models were legally activated in the United States to facilitate the creation of hybrid firms.1 While social enterprises have been part of the U.S. economy for more than a hundred years,2 organizations in the United States have operated in two very different legal categories: for-profit businesses and nonprofit charitable organizations.3 Although some companies, such as Goodwill Industries, blend charitable work with revenue-generating services, they are rare exceptions.4 The advent of the new legal business models, however, has created strong interest in businesses that can pursue a dominant social mission.5 One new business model is the low-profit, limited liability company (L3C). The L3C was first introduced in Vermont in 2008 and has since been adopted by several other states.6 The L3C is designed to serve the for-profit and nonprofit needs of social enterprise within one organization.7 As such, it has been referred to as a “[f]or-profit with [a] nonprofit soul.”8 The L3C operates like a nonprofit by primarily pursuing a social or charitable mission, but it also functions like a forprofit company because it generates revenues and distributes the profits to its equity owners. The L3C model thus enables social entrepreneurs to combine funding that would typically be set aside for either financial investments or charitable donations and allows investors to seek both a financial and social return on their investment. This double bottom line, involving social and financial returns, increases access to funding not ordinarily available to social entrepreneurs.9 In an effort to efficiently introduce the L3C business model, states have designed L3C laws under existing LLC regulations.10 The flexibility provided by LLC laws allows an L3C to claim a primary social mission and avail itself of unique financing tools such as tranche investing. 11 Specifically, the L3C statutes are devised to attract the program related investments (PRIs) of charitable foundations.

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