Legal Structures

Various states have passed legislation creating new legal forms of business that are for-profit but also seek to create positive impact.

Benefit Corporation is a distinct legal structure passed into law in 7 states (NY, CA, HI, MD, VA, VT, NJ), establishing a for-profit entity that creates material positive impact on society and the environment as determined by an independent 3rd party standard. The specific details of each state’s legislation differ slightly but generally benefit corporations must consider multiple stakeholders (including shareholders, beneficiaries of an identified public benefit, and the environment) when making business decisions, and must meet formalities regarding transparency and accountability. Note: benefit corporation legislation is different from b corporation certification.

Read More: b corporation website, a new kind of corporation for a new economy, 3 key differences between benefit corporations and b corps

Low-Profit Limited Liability Corporation (L3C) is a type of limited liability company (LLC) that identifies a specific socially beneficial mission much like a non-profit organization does. But, unlike a non-profit, an L3C allows profits to be distributed to owners. Like traditional LLC’s, L3C’s limit the personal liability of owners and are not taxed like corporations.

L3C legislation is enacted as an amendment to a state’s current LLC legislation rather than a separate bill. One pain point that L3C’s were created to address was the IRS requirement that private foundations only invest in for-profit enterprises that are IRS sanctioned program-related investments (PRI’s). The hope was that L3C’s, by virtue of the outlined charitable purpose, would automatically meet the IRS criteria as a PRI, however, there has not yet been federal recognition of L3C’s as PRI’s.
L3C legislation has passed in 9 states and 2 federal jurisdictions.

Read More: Americans for Community Development…the organization for L3C’s, interSector Partners L3C resources, The L3C — 3 years later, using new hybrid legal forms: 3 case studies, what is an l3c?

Flexible Purpose Corporation is a new corporate form that was passed into law in California in October 2011. The bill, SB 201, requires that corporations seeking this distinction list a special purpose in their corporate filing formalities. The purpose may include, but is not limited to, charitable and public purpose activities that could be carried out by a nonprofit public benefit corporation.

Managers or directors of flexible purpose corporations are required to outline objectives for assessing whether the special purpose was achieved, and for complying with certain accounting and transparency formalities.

Read More: everything you wanted to know about flexible purpose corporations (and then some), flexible purpose corporation, q&a on CA’s flexible purpose corporation, 2 social enterprise bills in CA: key features of AB 361 and SB 201



Powered by Facebook Comments

Comments are closed.