L3C Legislation Pitched in Georgia and D.C.

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April 3, 2011; Source: Washington Post | Given his history of work with KIPP D.C. and Teach for America, it is no surprise that interim at-large D.C. City Council member Sekou Biddle is enthusiastic about the concept of low profit limited liability corporations (L3C). But his proposed L3C legislation in D.C. appears to be more than simply facilitating socially-minded for-profits’ access to foundation PRIs.

In this article in the Washington Post, Biddle suggests that nonprofits are going to be whacked in the upcoming D.C. budget (facing a $330 million deficit), requiring organizations “to look elsewhere for support.” Contending that “establishing a traditional nonprofit company is a time-consuming, bureaucratic nightmare,” because of regulations that “require any income created by the nonprofit to be mission related,” Biddle proposes that his L3C bill would “remove . . . regulatory restraints and allow firms to harness the energy of the market.”

In his concept, L3Cs would access the capital markets like other for-profits, but “not lose access to support from foundations and governments.” Up to this point, L3Cs haven’t had access to foundation money that they might lose, but that is changing. Georgia’s new bill, proposed by Republican state legislator Jon Burns is clearly meant to “allow us to attract investments, especially from foundations,” as he told the Atlanta Business Journal. ABJ also reported that SEEDR, a Georgia L3C subsidiary of a “commercialization incubator” incorporated in Michigan, has won funding from the Bill & Melinda Gates Foundation to develop insulating containers for transporting vaccines.

Biddle’s model is D.C. Central Kitchen, a nonprofit with a for-profit catering subsidiary, Fresh Start. Notwithstanding the multiple nonprofit misconceptions in his brief op-ed, Biddle’s likely election in a special election later this month is all but assured. There is nothing in Biddle’s concept of a L3C that a nonprofit couldn’t do – except distribute the undefined “modest” profit to owners and investors. There may be legitimate reasons, perhaps, for L3Cs in certain circumstances (for example, in responding to the economic dislocation of Michigan’s depressed automobile manufacturing industry or North Carolina’s weak textile and furniture industries), but not as a government and foundation bypass of the work of the charitable sector.

One particularly disturbing line in Biddle’s commentary – disturbing because of D.C.’s many politically connected nonprofit brouhahas (most recently, Ward 5 Councilman Harry Thomas’s “Team Thomas” nonprofit) – alleges IRS harassment of nonprofits over their for-profit ventures, referring to an unnamed museum making money in its museum café.—Rick Cohen

  • Robert Lang

    Rick says, “…but not as a government and foundation bypass of the work of the charitable sector.” which bothers me greatly and it may come from the name of your publication. The term “charitable sector” should belong to any individual or entity which performs a charitable service. There is no reason to restrict it to a nonprofit. In fact all business that can be performed by a tax paying for profit rather than a nonprofit should be done by the for profit Likewise the work of government should be done by a for profit if it can do it better.The engine that keeps America running is the products and services provided by free enterprise, tax paying entities. Government and nonprofits should only step in where there is a gap not filled by free enterprise. For profits are generally more efficient and cost effective than either nonprofits or government and use private caapital.

    The problem with free enterprise is that in some cases it does not consider externalities and may be overly selective in who it serves, what the service costs, and where the profits end up. Normally this is not a problem but where it is the L3C was created to fill that need. By requiring that it be established for a charitable purpose and that that charitable purpose must come before profit many of the shortcomings of the normal for profit in those cases are eliminated.We need more not fewer tax paying entities to generate wealth for all.

    I think if you would change the name of your publication to the “Charitable Quarterly” you would acquire a better perspective. Government and Nonprofits are a means to and end not the end in and of themselves. The L3C becomes another tool in the arsenal. Why not support results rather than process?

    The interesting thing is that since L3Cs look outside the government or nonprofit sector for much of their funding they actually relieve the burden on those sectors for funding and will leave more money available for those projects that must be funded by nonprofits or government.