L3C - Low Profit LLC - All You Need to Know
You’ve certainly heard of an LLC, but there’s a new form of limited liability company: an L3C, or low-profit limited liability company.
An L3C combines some of the most useful characteristics of nonprofit and for-profit organizations. While it operates similarly to an LLC, an L3C’s primary mission should be to achieve social good. Generating a profit comes second.
If your endeavor has a charitable purpose but you don’t want to go the nonprofit route, an L3C can allow you to generate a modest profit and sustain the organization while carrying out your social or charitable goals.
The Benefits of L3Cs
The great thing about the L3C legal structure is that it encourages social entrepreneurship. It allows for self-sustaining charitable and social missions with help from investors and donors. It can be a powerful tool when used correctly!
An L3C is allowed to accept investments (like a for-profit company) and donations (much like a nonprofit). Traditional nonprofits are not allowed to generate income and offer a return on investment to private investors or foundations. However, L3Cs are able to do just that.
L3Cs are a wonderful option for art programs and activities, musical groups such as community symphonies, and theater groups. These types of organizations are an important part of any community, and an L3C can allow them to profit from their work while still primarily focusing on their goals to educate and spread the appreciation of the arts.
L3Cs are a great option for any educational program or service that carries out a mission for the good of the community and wants to fund projects while paying workers for their efforts.
The Drawbacks of L3Cs
You will have to find investors who strongly believe in your mission. From an investor’s perspective, the risk may not be worth the potential reward. It may be difficult to find investors if you are just starting a new venture and you don’t yet have a track record. You’ll need to prove that you have a strong mission and the ability to execute that mission.
Most L3Cs don’t qualify as tax-exempt. Unless all members are tax-exempt organizations, an L3C will have to pay taxes on any income, unlike a nonprofit organization.
Not every state recognizes L3Cs, but many do, including Illinois.
Forming an L3C in Illinois
To file for an L3C or any other type of company, you’ll need to complete paperwork and pay a filing fee. It is highly suggested to consult with a small business attorney to ensure you are complying with your state’s legal requirements.
If you need to form an L3C, an LLC, a C-corp, or another type of organization, we make it simple with our affordable, flat-rate Business Formation Packages. We’re located in Illinois, but we can incorporate your business in any state. Contact Enterprise Esquire today for a free consultation. We look forward to hearing from you!
