Acumen Law Group, LLC

The Low-Profit LLC: A New Entity in Illinois

On January 1, 2010, Illinois will become one of only 5 states to recognize the low-profit limited liability company (“L3C”).  The L3C is a variation of the familiar limited liability company (“LLC”), and is only available to for-profit entities whose primary goal is to achieve a socially beneficial objective.  Put differently, profits must be a secondary goal of the entity.  This entity form aims to make it easier for social enterprises to attract capital.  Currently, an L3C can only be formed in the states of Michigan, Vermont, Wyoming, and Utah.

The L3C shares many characteristics with a typical LLC – it is a for-profit entity; offers a flexible ownership structure; is treated like an LLC for tax purposes, rather than a not-for-profit entity; and its members enjoy limited liability.  Unlike an LLC, however, the primary purpose of the L3C must be to achieve a socially beneficial objective.  In order for an entity to qualify as a L3C, it must (i) significantly further the accomplishment of one or more charitable or educational purposes, and would not have been formed but for its relationship to the accomplishment of such purpose(s); (ii) not have as a significant purpose the production of income or the appreciation of property (though the company is permitted to earn a profit); and (iii) must not be organized to accomplish any political or legislative purposes.

One of the advantages of the L3C is that it embodies the operating efficiencies of a for-profit entity, while remaining unburdened by the many not-for-profit entity regulations.  This structure also provides the entity with a better chance at recovering its principal investment and potentially realizing a capital gain which, in turn, can be plowed back into the entities’ charitable or educational endeavors.

If you have any questions regarding the Illinois low-profit limited liability company, please call one of our experienced attorneys at Acumen Law Group.

Authored by Dominika Szreder Fard, Esq. and Shoko Asaka

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