Vermont's Social Hybrid Pioneers: Early Observation and Questions to Ponder

Abstract

On April 30, 2008, Vermont recognized a new business entity form, the Low Profit Liability Company, also known as the L3C. An L3C is a for-profit organization, designed to retain the flexibility of a limited liability company (LLC), but with a primary motivation to achieve a charitable goal. It is also designed to facilitate social investing from private foundations through program related investments (PRIs). In the two plus years since Vermont adopted the L3C, six other states and two tribal nations have recognized this new social hybrid. During that time, 101 social entrepreneurs also registered their L3Cs with Vermont’s Secretary of State.

This article examines the experiences of those early adopters of the L3C business form. Through surveys, phone conversations, and examinations of web sites, I explored the reasons these entrepreneurs chose the L3C over alternatives such as a traditional LLC or a Section 501(c)(3) tax-exempt organization. I found a group of entrepreneurs who embraced the unofficial slogan of the L3C, “the for profit with a nonprofit soul.” The flexibility and simplicity of the L3C form also appealed to them. The possibility of attracting PRIs intrigued some, but certainly not all, of these entrepreneurs, and it was not the prime motivator for any of them. Given a choice between creating a traditional LLC or a Section 501(c)(3) tax exempt organization, every person interviewed would choose the LLC.

These findings suggest that the motivations of the early L3C entrepreneurs in adopting this business form do not match the expectations of those who created the L3C. For a variety of reasons discussed in the article, this result is not surprising, and it may change over time. Nevertheless, these findings can inform legislators and others who are following the development of the L3C, and they raise broader questions for policy makers in the nonprofit and for-profit business arenas.

Keywords: Social Enterprise, L3C, Hybrid Organizations, Charity, Nonprofit, Philanthropy