An L3C is a for-profit, social enterprise venture that has a stated goal of performing a socially beneficial purpose, not maximizing income. It is a hybrid structure that combines the legal and tax flexibility of a traditional LLC, the social benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise. The L3C is obligated to be mission-driven so there is a clear order of priorities for its fiduciaries.
The L3C is designed to make it easier for socially oriented businesses to attract investments from foundations and additional money from private investors. Unlike the traditional LLC, the L3C's articles of organization are required by law to mirror the federal tax standards for program-related investing.
A program-related investment (PRI) is one way in which foundations can satisfy their obligation under the Tax Reform Act of 1969 to distribute at least 5% of their assets every year for charitable purposes. While foundations usually meet this requirement through grants, investments in L3Cs and charities that qualify as PRIs can also fulfill the requirement while allowing the foundations to receive a return.
A designation created by the Tax Cuts and Jobs Act of 2017 allowing for certain investments in lower income areas to have tax advantages. The purpose of this program is to put capital to work that would otherwise be locked up due to the asset holder's unwillingness to trigger a capital gains tax.
A tax-advantaged vehicle for holding and investing unrealized capital gains in qualifying businesses and assets in economically distressed areas.
Stock, partnership interest or property owned by a Qualified Opportunity Zone Business.
Capital gain generated through a sale of stock, real estate or business assets to an unrelated party that has not been reinvested in another asset.
Businesses which are certified to be at least 51% owned, operated and controlled on a daily basis by one or more American citizens of a qualifying ethnic minority and/or gender classifications.
An employee-owner program that provides a company's workforce with an ownership interest in the company. In an ESOP, companies provide their employees with stock ownership, often at upfront cost to the employees. ESOP shares, however, are part of employees' remuneration for work performed. Shares are allocated to employees and may be held in an ESOP trust until the employee retires or leaves the company. The shares are then either bought back by the company for redistribution or voided.
Impact investing refers to investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.
Also known as social, sustainable, socially conscious, "green" or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about a positive change.
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