To Be or Not To Be an L3C

November 5, 2010; Source: Asheville News/Mountain Xpress | NPQ has devoted plenty of print and online space to the emerging concept of L3C companies, the low-profit limited liability companies that have been promoted by the Council on Foundations and others as a new corporate form of social enterprise worthy of foundation support.

A half dozen states have authorized the creation of L3Cs, the latest being North Carolina. As many have acknowledged, the aim of L3Cs is to get a sort of blanket approval of eligibility for Program Related Investments (PRIs), which are loans and loan guarantees that foundations can make and that count toward foundations’ required qualified distributions or payout. (Note: Foundations can invest from their corpus in for-profit companies through Market Related Investments or MRIs, but they don’t count toward payout).

In the absence of the authority to access PRIs, what do L3Cs actually do? An artisan bread company in the western part of North Carolina called Carolina Ground has formed as an L3C under that state’s new authorizing legislation. The structure of Carolina Ground is as a “bakers’ owned co-op mill,” but it has sought and received L3C status. The founder said that the mill will “enable the farmer to get the best possible price for his/her grain at an affordable cost to the baker . . . to exist outside of the commodities market.” She calls Carolina Ground a “sort of hybrid between an LLC and a 501 C-3, in other words, it is a mission-driven for-profit business.”

Although unclear in the article, it appears that the company has received some sort of unspecified support from the North Carolina Bread Flour Project of the Carolina Farm Stewardship Association (an initiative launched with a two-year grant from the North Carolina Tobacco Trust Fund Commission and Santa Fe Tobacco). All well and good, we love artisan bread, but the purpose of the L3C per se is unclear.

Perhaps the L3C’s triple-bottom-line nomenclature enhances Carolina Ground’s ability to attract socially responsible investment, but unless somehow the IRS suddenly gives L3Cs in Vermont, Illinois, Michigan, and now North Carolina the PRI authority they want, it doesn’t seem like Carolina Ground will be quickly accessing the PRIs available from North Carolina’s well-respected and innovative philanthropic sector.—Rick Cohen