L3C’s are designed to receive private foundation support, government funding, and traditional investment capital. Unlike a standard LLC, the L3C has an explicit primary charitable mission and a secondary profit concern. But unlike a charity, the L3C is free to distribute the profits, after taxes, to owners or investors.A principal advantage of the L3C is its qualification as a program related investment (PRI), an investment with a socially beneficial purpose that is consistent with and furthers a foundation’s mission. Because foundations can only directly invest in for-profit ventures qualified as PRI’s, many foundations refrain from investing in for-profit ventures due to the uncertainty of whether they would qualify as PRI’s or use costly time and resources to acquire a Private Letter Ruling from the IRS to verify that the venture is a valid PRI. An L3C’s operating agreement minimizes this problem by specifically outlining its respective PRI-qualified purpose in being formed, making it easier for foundations to identify social-purpose businesses as well as helping to ensure that their tax-exemptions remain secure.
Principle for Responsible Investment.