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Webinar Recap: Ashoka Workshop on Hybrid Legal Structures by Morrison & Foerster, Jones Day, and Adler & Colvin

On Tuesday, January 29th 2013 Ashoka Legal brought together a few top law firms specializing in social enterprise law and hybrid structures. The session was created to be an open discussion and training on some of latest trends, tools, and resources for setting up nonprofits, for-profits, hybrids, and new corporate structures.
Hybrid Structures Webinar: Nonprofits, For-profits, and New Corporate Forms
The event, held at the Morrison & Foerster offices in San Francisco, was live-streamed online. The presenters’ list included:

Watch the Webinar

For social innovation attorneys, law students, and social entrepreneurs seeking to research legal entity options, formation, and restructuring—this webinar is an excellent tool to begin unpacking the many options available. And, the experience is made more meaningful as it is guided by attorneys at the forefront of the social enterprise legal space.
If you missed the the live webinar or live session, Morrison & Foerster is making the archived webinar available for viewing until April 2013.

Legal Structures

The speakers spoke in detail about legal structures that have been covered on Innov8Social, weaving in practical experience, policy history, and examples into their assessment of how each structure may benefit a social enterprise or non-profit.
Legal structures for social enterprise law covered in the webinar
Hybrid legal structures
  • For-profit subsidiary of a nonprofit
  • Nonprofit under control of for-profit
  • Sibling relationship of for-profit and nonprofit
  • Independent, but aligned entities
Other tools that can create value, and enable entities to remain mission-driven 
  • Licensing
  • Trademark
  • Integrated reporting: to integrate social, environmental impact alongside financials
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What is an L3C? (Low-Profit Limited Liability Company)

If you’ve been following Innov8Social, you will have noticed a number of posts on benefit corporations. They are a new legal structures passed by a handful of states that are hybrid forms of business—entities that are for-profit and which aim to benefit society and the environment.

 

And you will have seen posts about flexible purpose corporations. Unique to California, this new type of business lets companies define a ‘special purpose’ such as a charitable or public purpose.

 

But benefit corporations and flexible purpose corporations weren’t the first legal structures introduced for social enterprise.

 

The first was the L3C, which was made its debut in Vermont in 2008—two years before the first benefit corporation bill was passed in Maryland.

What is an L3C?

A low-profit, limited liability company (L3C) is a type of limited liability company (LLC) that defines a specific socially beneficial mission, like a non-profit does. But unlike a non-profit, it allows profits to be distributed to owners.

 

L3C’s retain the protection of traditional LLC’s, such as limitation of personal liability of owners. And, like LLC’s, the company is not taxed like a corporation—with taxes, instead, flowing to individual members.

 

The legislation required to enact L3C is an amendment to a state’s current LLC legislation, rather than a separate bill.

L3C’s Aim to Make it Easier for Foundations to Invest in For-Profit Ventures

One of the key reasons for the creation of the L3C was to simplify investment to social businesses by foundations. To invest in a for-profit enterprise, private foundations must invest in IRS sanctioned program-related investments (PRI’s).

 

L3C’s aim to to streamline the process of approving a for-profit as a PRI by virtue of the outlined purpose of an L3C as being to serve a charitable purpose (like non-profit). However, L3C’s must request approval from IRS to be considered a PRI.

 

Hurdles Faced by L3C’s

The Nonprofit Law blog outlines a few hurdles that L3C’s have faced. These include:

  • No federal recognition of L3C’s as PRI’s. L3C supporters had submitted proposals for ways in which L3C’s could be more easily ruled as a PRI. This would make L3C’s more of a favorable investment opportunity for private foundations. These proposals have not yet passed.
  • Some state opposition. There has been some opposition presented by committees within the American Bar Association with regards to elements of the L3C structure.

Read More:

L3C – Low-profit Limited Liability Company (Nonprofit Law Blog)
For L3C companies, profit isn’t the point (CNNMoney)
The ‘L3C’: The new double-hybrid entity (Philanthropy Journal)

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