Birthdays only come around once a year, so what would be your birthday wish L3C? As you blow out the candles, we look back and reminisce.
It has been three years, since the first state in the country, Vermont, recognized low-profit limited liability company (L3C) as an official legal structure. Since April 30, 2008, nine additional states have passed legislation, including Michigan, Wyoming, Utah, Illinois, North Carolina, Louisiana, Maine, Rhode Island, Oglala Sioux Tribe, and Crow Indian Nation of Montana.
We beg the question, is this a time to really celebrate? Although several state legislations have taken the plunge, both efforts made by the Program-Related Investment Promotion Act of 2008 and Philanthropic Facilitation Act of 2010 have led to no significant federal legislation that allow L3C’s access to PRI’s and Private Letter Rulings. There has yet to be any evidence based research strengthening the L3C argument, nor a guarantee of these new social enterprises working among the current states enacting it.
To make matters worse… another social enterprise, Benefit Corporations are trailing its way into legalization. Benefit Corporations are geared towards modifying corporate law, rather than Limited Liability Companies law. Most importantly, Benefit Corporations do not have access to PRI’s, and call for complete restructuring of our economy. So far, Maryland, New Jersey, Vermont, Virginia, Hawaii and New York have all passed legislation for Benefit Corporations, and there are several states with pending legislation.
With the increase in tighter budgets, government is looking towards the for profit sector, instead of the nonprofit, to take social responsibility and serve the public. Instead of utilizing nonprofits, which have for years helped build stronger communities, they are looking towards new social enterprises which are already in need of funding to be created. Therefore, instead of saving money, our state is spending more money to jumpstart these new entities. Funneling money into these L3Cs takes a huge risk at the expense of the public taxpayers.
Throughout our country’s history, we have seen where an unrestricted capital market can create more problems than solutions. L3C’s are a prime example of what can go wrong. These social enterprises want less oversight, not more. Instead of assuming these enterprises will work, and passing legislation on them, careful and precise measures need to be taken to ensure unintended consequences do not occur.
So to you, L3C’s, is it really a Happy Birthday?
