L3c Investments in Low Profit Organizations
LisaBoxWilliams Posts: 28✭✭✭
edited August 2021 in Finance & Operations
Hi! Has anyone granted funds to the new designation L3c organizations yet? Are you using a loan document or a grant agreement for the details? Many thanks for any insight on the new designation.
I am adding my name here so I can more easily follow the conversation. I'll also think about who might have a good answer. I don't remember talking about this with anyone but maybe I can come up with something.
Yes, L3c, the low-profit entity. We are making a grant to the organization. We are not structuring it as a loan and we are using our standard grant agreement. The organization is keeping a seperate fund for the specific investment that we are making. The organization has a financial advisory board and an academic oversight committee for the fund. I am excited that we are dipping into something new. Thanks @KaraAdams and @AaronSpevacek
Back when I was with the Council, we worked on a few deals around L3c with the treasury and regulators, as well as foundations engaged in work with them. First off, its great you are seeing some of these being established in your community. You probably already know they are essentially a Limited Liability Corp (LLC), just with a different profit motive being tied to societal outcomes over financial profit margins. While they are recognized across the US, there are still some States that have not incorporated L3Cs, so you might need to check with the organization about their State filing or with the Attorney General if you intend to do loan programs. However, if only doing grant programs, as long as the charitable nature is well documented, there usually are no limitations to grantmaking.
Regrettably, I cannot remember the foundations (most were private at that time) doing loans to L3Cs, but it was usually tied to a loan program for capital campaigns or other activities normally not funded by grants, but the foundation felt compelled to support with near zero interest or below market loans. They usually focused on who benefits from the grant -- is it the services and programs, or the owners of the L3C - if a perceived benefit was going to the owners, they were more inclined to insist it be a loan over a grant.
Hope this helps!