Here is the standard statement advising you to consult a qualified attorney and your accountant before taking any action.
In some respects the requirements for a L3C are similar to those of a Benefit Corporation. As stated in the 2009 legislation, a Low-Profit Limited Liability Company:
- Shall significantly further the accomplishment of one or more charitable or educational purposes within the meaning of Section 170(c)(2)(B), Internal Revenue Code;
- Shall demonstrate that it would not be formed but for the company’s relationship to the accomplishment of a charitable or educational purpose;
- May not have as a significant purpose the production of income or the appreciation of property; and
- May not have as a purpose to accomplish one or more political or legislative purposes within the meaning of Section 170(c)(2)(D), Internal Revenue Code.
There is another potential opportunity for L3C’s
Foundations donate millions every year for charitable purposes to keep their tax-exempt status. They can do that through grants, of course but they also can make investments, as long as the entity they’re putting their money in primarily is aimed at a charitable or educational purpose and making a profit isn’t a significant goal. Those investments are called Program Related Investments (PRIs).
PRI’s are defined by the IRS (25Apri2014) as those in which:
- The primary purpose is to accomplish one or more of the foundation’s exempt purposes,
- Production of income or appreciation of property is not a significant purpose, and
- Influencing legislation or taking part in political campaigns on behalf of candidates is not a purpose.
There may be cases where there is direct alignment between a foundations purpose and that of a L3C which might result in an IRS qualified donation/investment.
These are only a few of the considerations in forming and managing a L3C in Utah. None of the items are outside the scope of what a responsible entity would enact in the normal course of action so these should be considered a guide to success rather than a deterrent to establish a Benefit Corporation.
At Impact Navigators, we work with businesses and individuals to establish and maintain their Utah L3C. We coach and mentor businesses and individuals in the processes and practices needed to assure continuous and sustainable compliance against regulations and performance against targeted objectives. The outcomes we look to achieve are focused on increased financial performance, inclusion of targeted metrics in financial and social performance, enhancement of branding and marketing efforts and processes to maximize sustainability – for the benefit of all.
Let Impact Navigators help you transform your company through success and on to Significance!
Contact us today at Stewards@impactnavigators.com for an initial consultation.