A previous post on organizational hybrids (for profit non-profits) prompted much interest, so here’s the latest from attorney Evangeline Gomez at Forbes on this topic with more legal details:

In recent years, two new types of corporations have been created to address the goals of making money, attracting private investors and addressing societal concerns:  the benefit corporation and L3C.  A study shows more than $120 billion in potential investments for these socially-minded companies.   The emergence of these corporations serve as alternatives to the traditional C or S Corporation structures. [and perhaps the 501c3]. . .

 

The benefit corporation is recognized in Maryland, California (which also has the flexible purpose corporation), Hawaii, Vermont, Virginia, New Jersey and (as of February 14, 2012) New York.  In order to incorporate as a benefit corporation, the corporation must have the dual purpose to create general public benefit by creating value for its’ stakeholders – such as the community, local and global environment, employees, suppliers and customers- and create a profit for shareholders. For example, if the charter of a benefit corporation makes clear that it is organized to build affordable housing, officers and directors are therefore held accountable to achieve both this objective and a profit.  Legally this means, the benefit corporations can be shielded from lawsuits by shareholders who argue the corporation has diluted their stock by putting general social value over profit. . . .

 

The L3C (low-profit limited liability company), a hybrid between a non-profit and for-profit corporation,  possesses the same liability protection and pass- through tax treatment as an LLC.  The L3C must have a primarily charitable purpose with profit making as a secondary purpose.  Vermont, Rhode Island, Maine, Michigan, Illinois, North Carolina, Utah, Louisiana, and Wyoming recognize the L3C.  The L3C structure, through its flexible membership rules, attempts to attract Program Related Investments (PRI) – equity or debt from a foundation parallel with the charitable purpose of the foundation- from private foundations.   L3Cs, in contrast to tax-exempt charities, can distribute post-tax profits to its owners.

For the complete post, see “The Rise of the Charitable For-Profit Entity” (Forbes, January 13, 2012).