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Entrepreneurs With Social Minded Small Businesses Might Benefit From L3C Formation

Written by Ken Gaebler
Published: 2/8/2010

Small business owners who form an L3C might start for-profit philanthropic businesses.

Last year, charitable donations declined somewhat, but Americans proved that giving was still a priority in the midst of recession with new technology trends like mobile giving and online donations skyrocketing at the end of 2009.

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Some small businesses did not fare as well in finding investors in trying times. But it may be good news for entrepreneurs that they soon may be able to form a business entity called L3C that allows them to take startup funds from venture capitalists and foundations alike.

According the fundraising forum tonic.com, the new low-taxed, limited-profit, limited liability corporation is gaining prominence among startups in eligible states.

The IRS has yet to decide if such entities will be able to receive program-related investments, but L3C companies will otherwise function similarly to nonprofits with the exception that they are for-profit entities with a clause in their operating agreement about percentages of profits that will go to those in need.

L3C companies will be appealing to a very specific type of entrepreneur. "We're trying to create an LLC whose very DNA insists that it has to put its beneficial activities in front of making money," Robert Lang, one of the creators of the concept of the entity, told CNN Money.

This might be of interest to a number of social-minded entrepreneurs; according to the Wall Street Journal, there was a spike in nonprofit formation last year.

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