New Model for Business?

Board Cafe's publication Blue Avocado offered information on a new development for businesses. As the article relates:

For-profit companies continue to seek ways to obtain two benefits that are usually reserved for nonprofits: foundation grants and government tax exemptions. These efforts are led by both well-meaning individuals as well as those that simply want funding without communityaccountability. Regardless, they offer risks and challenges to the nonprofit sector as we know and celebrate it. Rick Cohen tells us of one such effort that appears -- in the absence of opposition -- to be headed for adoption.

The hot topic in foundation circles is the L3C: the low profit limited liability corporation, the latest development in social enterprise. Several states are legalizing L3Cs and accompanying tax and philanthropic benefits, and its backers are pitching them for federal approval.

L3Cs are profit-making corporations, but their owners don't identify profit as their primary purpose. The mission of an L3C is a social benefit, doing socially productive and useful things, and only then earning a profit.

At the national level, the Council on Foundations has been actively promoting L3Cs, on Capitol Hill for the past two years. Already in four states and two tribes, individuals can form L3Cs and attract various types of investors, and, because of their charitable missions, tap into foundation loans and guarantees. At least they will be able to if Congress passes legislation giving blanket approval for such loans, or if the Internal Revenue Service (IRS) issues a ruling authorizing them.

There may be some sound reasons for the creation of hybrid models melding features of nonprofits and for-profits, hopefully helping localities and states attract new sources of capital for critical economic and environmental ventures. But states, Congress, and the nonprofit sector might want to be cautious about this social enterprise innovation. Read more here.