Regulation of L3Cs for Social Entrepreneurship: A Prerequisite to Increased Utilization

John A. Pearce II

Villanova University

Jamie Patrick Hopkins

The American College

January 15, 2014

Nebraska Law Review, Vol. 92, No. 2, 2014

One new business model is the low-profit, limited liability company (L3C). The L3C was first introduced in Vermont in 2008 and has since been adopted by several other states. The L3C is designed to serve the for-profit and nonprofit needs of social enterprise within one organization. As such, it has been referred to as a "[f]or-profit with [a] nonprofit soul."

In an effort to efficiently introduce the L3C business model, states have designed L3C laws under existing LLC regulations. The flexibility provided by LLC laws allows an L3C to claim a primary social mission and avail itself of unique financing tools such as tranche investing. Specifically, the L3C statutes are devised to attract the program related investments (PRIs) of charitable foundations. Despite these successes, adoption of the L3C form has been slower than proponents expected.

A similar business initiative has found great success in the United Kingdom (U.K.), where numerous proponents supported legislation designed to create hybrid business models that would promote social entrepreneurship. As a result, the U.K. created the Community Interest Company (CIC) in 2006, allowing more than 4,500 companies to register as CICs that offer a double bottom line (or dual benefit) to investors.

While CICs and L3Cs were created with the same double bottom line in mind, CICs face strict government regulations that provide investors with additional protections. These regulations have indirectly contributed to the success of many CICs by increasing investor confidence in the success of these businesses.29 In the United States, the flexibility of LLC statutes may provide L3Cs with unique funding options, but the lack of government regulation leaves investor outcomes uncertain and inhibits L3Cs from being a better-utilized business model for social entrepreneurship.

Number of Pages in PDF File: 30

Keywords: L3C, CIC, United States, Social, Business, Entrepreneurship, Company, law, legal, foundation, community, interest, regulation, LLC, limited liability

Open PDF in Browser Download This Paper

Date posted: January 16, 2014  

Suggested Citation

Pearce, John A. and Hopkins, Jamie Patrick, Regulation of L3Cs for Social Entrepreneurship: A Prerequisite to Increased Utilization (January 15, 2014). Nebraska Law Review, Vol. 92, No. 2, 2014. Available at SSRN: https://ssrn.com/abstract=2379482

Contact Information

John A. Pearce II
Villanova University ( email )
Villanova, PA 19085
United States
Jamie Patrick Hopkins (Contact Author)
The American College ( email )
Bryn Mawr, PA 19010
United States
610-526-1441 (Phone)
HOME PAGE: http://www.theamericancollege.edu/why-us/faculty/jamie-patrick-hopkins-esq.-j.d.-m.b.a
Feedback to SSRN

Paper statistics
Abstract Views: 673
Downloads: 116
Download Rank: 190,623
Paper comments
No comments have been made on this paper