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April 21, 2008

Vermont Governor Expected to Sign Bill on Charity-Business Hybrid

Vermont is poised to become the first state to officially recognize a new kind of business designed to allow charitable ventures to more easily attract foundation money and other kinds of private capital. Advocates of the new business structure – what they describe as “a for-profit with a nonprofit soul” — say it has the potential to attract billions, if not trillions, of new dollars to organizations doing good works around the country.

The new business entity is to be called a low-profit limited liability company, or L3C, and Vermont’s governor is expected to sign into law at the end of the month the bill creating the designation.

An L3C, a variation of a limited-liability company, would operate like a for-profit business generating at least modest profits, but its primary aim would be to offer significant social benefits, such providing jobs in an economically depressed area. Such business models already exist: The Vermont law would give them a name, and, its advocates hope, both encourage the creation of more socially conscious businesses and attract more money to them.

In Vermont, the Castanea Foundation, an operating foundation that works to preserve farmland, is mulling plans to establish L3Cs under the new law that would set up local food-production efforts, like a cheese-aging facility or meat-processing plant.

“As an economic development tool, the L3C may be a great vehicle for us,” says Tim Storrow, the foundation’s executive director.

A key goal of the L3C idea is also to increase the number of loans or other so-called program-related investments that foundations make to businesses created to advance social missions. Having a special legal structure for these hybrid groups will help grant makers identify potential loan recipients, and, the idea goes, spur additional private investments, too.

— Debra E. Blum

Monday April 21, 2008 | Permalink

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