Business Law: L3C – Low-profit Limited Liability Companies -- helping philanthropists and other socially responsible investors put their capital to work for the good of society

“The advent of the L3C holds the promise that we will see more investment capital flowing to charitable organizations that are able to offer a “double bottom line” – a social benefit and a financial return. Private foundations and donor-advised funds will be most interested in investing in companies that are well managed, effectively advance their social mission, and have thoughtful financial plans for leveraging foundation capital. The companies that are able to create this kind of leverage will be giving private foundations the kind of long-term return they want to see – the possibility of some financial return, but, more importantly, long-term social benefits that will result from the organization’s expanded operations and greater financial self-sufficiency.”

The Business Law Group at Downs Rachlin Martin PLLC helps philanthropists and other socially responsible investors put their capital to work for the good of society through the formation of an L3C, or low-profit limited liability company. Currently, Vermont is the only state in the U.S. to enable the formation of these business entities specifically designed to facilitate socially beneficial investing, or “venture philanthropy,” by private foundations and donor-advised funds.

An L3C is a limited liability company organized under the laws of the State of Vermont that meets the following criteria upon formation and continuously during the life of the organization:

• The company significantly furthers the accomplishment of one or more charitable or educational purposes, and would not have been formed but for the company’s relationship to the accomplishment of charitable or educational purposes.
• No significant purpose of the company is the production of income or the appreciation of property; provided, however, that the fact that the company produces significant income or capital appreciation is not, in the absence of other factors, conclusive evidence of a significant purpose involving the production of income or the appreciation of property.
• The company is not organized to accomplish one or more political or legislative purposes.

DRM’s L3C team advises clients on venture philanthropy throughout the country and internationally.

Tom Moody, chair of the Business Law Group and of the L3C team, has experience with a wide variety of capital formation strategies, corporate organizations and investment transactions. He has served as counsel to institutional investors and angel investors in many investment transactions throughout the United States. He is the Chair of the Business Association Section of the Vermont Bar Association.

Roger Prescott provides tax advice and planning to clients on a wide range of issues, including choice of entity, complex stock and asset acquisitions, executive compensation and transactions involving United States investments by foreign entities. Roger leads the firm's Taxation Group and is tax counsel to a number of tax-exempt entities engaged in health care, education, philanthropy and related activities. He serves as Chair of the Taxation Section of the Vermont Bar Association.

DRM leads the legal profession in the formation of L3Cs

DRM is uniquely positioned to advise socially responsible investors and to help philanthropists form L3Cs. Our firm worked with the foundations and philanthropists that conceived of the L3C concept to pave the way for the law’s passage by the Vermont legislature and subsequent signing by the governor. At the same time, our experienced business law and taxation attorneys were forming a subspecialty group to assist with the formation of L3Cs.

Our collective experience enables DRM to advise philanthropists, corporations, private investors and charitable organizations on the benefits of establishing a low-profit, limited liability company. Our northern New England location offers cost advantages to our clients.

DRM’s Government Affairs team worked directly with the Vermont General Assembly in 2008 to make the L3C concept a reality. Now, our Business Law group has picked up the baton for the next leg in the race to make socially responsible investing more convenient, timely and beneficial. Through an L3C, investors and philanthropists can generate a profit and reinvest the profit for the good of society.

Contact Us

To learn more about forming an L3C under Vermont law, contact Tom Moody or Roger Prescott.