Relates to enacting provisions relating to the formation of low-profit limited liability companies

Summary of provisions

Section 1 Amends § 102 of the Limited Liability Company Law § 102 by adding a new subdivision (ii) to define "Low-profit limited liability company" as an LLC that satisfies at all times the following requirements: (i) to accomplish one or more charitable or educational purposes within the meaning of section 170(c)(2)(B) of the Internal Revenue Code, and would not have been formed but for its relationship to the accomplishment of charitable or educational purposes; (ii) its purpose is not the production of income or the appreciation of property; and (iii) does not engage in political activities or or legislative purposes within the meaning of IRS code 170(c)(2)(D).

Section 2. Amends § 203(e) of the limited liability company law by adding a new paragraph (7) as a statement of purpose of formation of the company that the company is a low-profit limited liability company.

Section 3. Amends 204 of the Limited Liability Company Law § 204 by adding a new subsection (j) to require that the company shall include in its name the words "low-profit limited liability company" or the abbreviations "L3C" or "L3C", with or without periods or other punctuation.

Section 4. Amends 211(d) of the Limited Liability Company Law by adding a new paragraph (9) to allow amendment of the articles of incorporation if needed to meet any of the requirements set out in section 102(o) (Majority in interest of the members).

Section 5 Amends 701(a) of the Limited Liability Company Law by adding a new paragraph (6) to allow dissolution if the limited liability company is a low-profit limited liability company that has ceased to meet any of the requirements set out in section 102(o) of this chapter and has failed for 90 days after ceasing to meet those requirements to file articles of amendment with the department of state amending its name to conform with the requirements of section 204 of this chapter governing limited liability company names.

Existing law

New bill.

Justification

In today's economic climate, it is important for public policy, business, and nonprofit leaders to think creatively and to implement innovative, responsible investment ideas that will empower

entrepreneurs, and private sector investors to invest in socially responsible opportunities that also reduce risk. The L3C is an important tool to accomplish these socially responsible economic goals. The L3C or Low-Profit Limited Liability Company is law in five states and several other states are considering passing this legislation. The L3C operates in the space between a nonprofit organization and a for-profit entity. The L3C is designated as low-profit with charitable or educational purpose and can have multiple applications and benefits. The L3C has been called the "for-profit with a nonprofit soul" by its creator Robert Lang.

The L3C is a type of LLC. It is a for-profit entity, not a charity or nonprofit entity, and is treated as an LLC for legal and tax purposes. It is flexible, designed to allow a mix of foundations, trusts, endowments, pension plans, individuals, corporations, and governmental entities to partner in order to achieve social objectives while operating in a for-profit business structure. It has the liability protection of a corporation and the flexibility of a partnership, but unlike a standard LLC, it is explicitly formed to further a socially beneficial purpose and qualify as a Program Related Investment from private foundation partners. This flexible structure allows for greater financing structures to be utilized in structuring social ventures. In short, it is a new legal entity combining financial advantages of an LLC with social advantages of non-profit.

Fiscal implications

None.

Effective date

Immediate.