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49-743: [REDACTED] Look up l3c in Wiktionary, the free dictionary. L3C may refer to: Low-profit limited liability company Level 3 Communications , a U.S. telco and ISP L-3 Communications , a U.S. satellite and aerospace company Aeronca L-3 C, a WWII USAAC airplane See also [ edit ] [REDACTED] Search for "l3c" on Misplaced Pages. 13C LC3 (disambiguation) LCCC (disambiguation) LLLC (disambiguation) I3C (disambiguation) LC (disambiguation) All pages with titles beginning with L3C All pages with titles containing L3C Topics referred to by

98-409: A corporation , LLCs are required to register in the states they are "conducting (or transacting) business". Each state has different standards and rules defining what "transacting business" means, and as a consequence, navigating what is required can be quite confusing for small business owners. Simply forming an LLC in any state may not be enough to meet legal requirements, and specifically, if an LLC

147-490: A duty of care and a duty of loyalty . Violations of these duties can result in a civil lawsuit and lead to compensatory damages and punitive damages . Note that some states allow for fiduciary duties to be altered within the operating agreement. Members of the L3C have limited liability . In other terms, member liability is limited to their capital contribution to the L3C except for member's individual torts . This means that

196-437: A " shareholder ". Additionally, ownership in an LLC is represented by a "membership interest" or an "LLC interest" (sometimes measured in "membership units" or just "units" and at other times simply stated only as percentages ), rather than represented by " shares of stock " or just "shares" (with ownership measured by the number of shares held by each shareholder). Similarly, when issued in physical rather than electronic form,

245-513: A C-Corporation, the entity will pay corporate taxes before profit is distributed to members who will also be required to pay tax on their gains. This is sometimes called double taxation . Prior to electing a taxation form, members of the L3C should consider the personal tax consequences of each election form. It is possible to convert from an existing legal form of business entity to an L3C and vice versa. Tax implications and formality requirements differ between each legal form of business entity and

294-454: A business formed as an LLC rather than a corporation. An LLC with either single or multiple members may elect to be taxed as a corporation through the filing of IRS Form 8832. After electing corporate tax status, an LLC may further elect to be treated as a regular C corporation (taxation of the entity's income prior to any dividends or distributions to the members and then taxation of the dividends or distributions once received as income by

343-475: A document evidencing ownership rights in an LLC is called a "membership certificate" rather than a "stock certificate." In the absence of express statutory guidance, most American courts have held that LLC members are subject to the same common law alter ego piercing theories as corporate shareholders. However, it is more difficult to pierce the LLC veil because LLCs do not have many formalities to maintain. As long as

392-530: A foreign firm doing business. Vermont was the first state to pass an L3C statute in April 2008 which effectively allowed for the L3C legal form to operate in every state along with internationally. L3C statutes currently exists in: Illinois, Louisiana, Maine, Michigan, Missouri, North Dakota, Rhode Island, Utah, Vermont, Wyoming, Puerto Rico, and the federal jurisdictions of the Crow Indian Nation of Montana and

441-462: A member to transfer their interest or right to profit is often limited; however, members can contract otherwise within the operating agreement. A member's interest is separate from membership. This means that an individual can transfer their member's interest but remain a member of the L3C. Because an L3C is a for-profit entity, it is not tax-exempt. L3Cs are taxed the same as LLCs for federal income tax purposes. This means L3Cs can elect to be taxed as

490-598: A personal liability in cases where distributions to members render the LLC insolvent. The first state to enact a law authorizing the creation of limited liability companies was Wyoming in 1977. The law was a project of the Hamilton Brothers Oil Company , which sought to organize its business in the United States with liability and tax advantages similar to those it had obtained in Panama . From 1960 to 1997,

539-417: A relatively young legal form of business entity. In 2013, there were 711 L3Cs throughout the United States and by 2020 there were 1,700 L3Cs. As stated, an L3C is a for-profit, social enterprise venture that has a primary goal of performing a socially beneficial purpose with a secondary goal of maximizing profits. It is a hybrid structure that combines the legal and tax flexibility of a traditional LLC,

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588-416: A similar entity called a professional limited liability company ( PLLC ). An LLC is a hybrid legal entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC is a type of unincorporated association , distinct from a corporation. The primary characteristic an LLC shares with a corporation is limited liability , and

637-432: A sole-proprietorship/partnership, C-Corporation, or even as an S-Corporation in some states. By default, an L3C with two or more members is taxed as a partnership while an L3C with one member is taxed as a sole proprietorship. Both of these elections are considered pass-through taxation because the profits/losses and thus taxes of a business are directly passed on to the members via their individual tax returns. When taxed as

686-487: A state with an L3C statute while continuing to operate in North Carolina. As mentioned, the initial inspiration for the L3C form was to create a way for foundations to meet donation requirements. However, beyond foundations, L3Cs see funding and investments from a variety of sources including trusts, endowments, pension funds, individual investors, corporations, other businesses, and even government entities. To simplify

735-763: Is SEEDR L3C, founded in 2008 in Atlanta to develop hardware, software, service, and policy solutions that help improve access to healthcare in Africa. In 2009, the Gates Foundation gave SEEDR L3C a $ 529,566 investment to fund the development of insulated containers for vaccine transport in developing countries. Today, SEEDR L3C's clients and funders include the US Centers for Disease Control & Prevention ( CDC ), Medecins Sans Frontieres (MSF), and UNICEF . Limited liability company A limited liability company ( LLC )

784-571: Is also pending at federal level that will simplify the process for receiving IRS approval that an investment qualifies as a PRI. Previously, North Carolina authorized L3Cs. However, as of January 1st, 2014, the state no longer recognizes the L3C legal structure. North Carolina did away with the L3C structure largely because lawmakers stated that a plain LLC can be used for the same purpose. Previously existing L3Cs incorporated in North Carolina can continue to use their designation. New entities wishing to be an L3C within North Carolina can incorporate within

833-491: Is different from Wikidata All article disambiguation pages All disambiguation pages Low-profit limited liability company The L3C structure was designed by Robert M. Lang, Jr., who was the CEO of a New York-based family foundation. Lang developed the structure as a way for foundations to clear tax and regulatory hurdles when it came to donations. With the first L3C statute being enacted in 2008, L3Cs are considered

882-400: Is formed in one state, but the owner (or owners) are located in another state (or states), or an employee is located in another state, or the LLC's base of operations is located in another state, the LLC may need to register as a foreign LLC in the other states it is "transacting business". For U.S. federal income tax purposes, an LLC is treated by default as a pass-through entity. If there

931-502: Is only one member in the company, the LLC is treated as a "disregarded entity" for tax purposes (unless another tax status is elected), and an individual owner would report the LLC's income or loss on Schedule C of his or her individual tax return. Thus, income from the LLC is taxed at the individual tax rates. The default tax status for LLCs with multiple members is as a partnership, which is required to report income and loss on IRS Form 1065. Under partnership tax treatment, each member of

980-479: Is the United States -specific form of a private limited company . It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation . An LLC is not a corporation under the laws of every state; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs are well known for

1029-679: The Delaware Limited Liability Company Act provides that the managers and controlling members of a Delaware-domiciled limited liability company owe fiduciary duties of care and loyalty to the limited liability company and its members. Under the amendment (prompted by the Delaware Supreme Court's decision in Gatz Properties, LLC v. Auriga Capital Corp ), parties to an LLC remain free to expand, restrict, or eliminate fiduciary duties in their LLC agreements (subject to

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1078-550: The LLC and the members do not commingle funds, it is difficult to pierce the LLC veil. Membership interests in LLCs and partnership interests are also afforded a significant level of protection through the charging order mechanism. The charging order limits the creditor of a debtor-partner or a debtor-member to the debtor's share of distributions, without conferring on the creditor any voting or management rights. Limited liability company members may, in certain circumstances, also incur

1127-563: The LLC seriously and enacted their own LLC statutes. By 1996, all 50 states and the District of Columbia had LLC statutes. In 1995, the IRS came to the conclusion that the widespread enactment of LLC statutes had undermined the Kintner regulations, and in 1996 it promulgated new regulations establishing a so-called "check the box" (CTB) entity classification election system that went into effect throughout

1176-405: The LLC, as is the case for all partners of a partnership, annually receives a Form K-1 reporting the member's distributive share of the LLC's income or loss that is then reported on the member's individual income tax return. On the other hand, income from corporations is taxed twice: once at the corporate entity level and again when distributed to shareholders. Thus, more tax savings often result if

1225-538: The Oglala Sioux Tribe. Legislation has been written for 26 additional states but has not yet been introduced. In May, 2012, the IRS released proposed regulations that broaden the landscape of what constitutes an acceptable PRI by adding nine new examples of investments that would qualify, along with some general principles. An amendment to the Illinois L3C law that would allow for a more expansive description of

1274-463: The Secretary of State within a state that has L3C statute provisions. For businesses primarily operating in a state without L3C statute provision, it is possible to still legally form as an L3C by (1) incorporating in a state with an L3C statute provision, (2) registering as a foreign business doing business in that particular state, and (3) appointing a registered agent within that particular state. Within

1323-522: The United States on January 1, 1997. LLCs are subject to fewer regulations than traditional corporations, and thus may allow members to create a more flexible management structure than is possible with other corporate forms. As long as the LLC remains within the confines of state law, the operating agreement is responsible for the flexibility the members of the LLC have in deciding how their LLC will be governed. State statutes typically provide automatic or "default" rules for how an LLC will be governed unless

1372-420: The United States, is sometimes different. When an LLC is formed, it is said to be "organized", not "incorporated" or "chartered", and its founding document is likewise known as its " articles of organization ", instead of its " articles of incorporation " or its "corporate charter". Internal operations of an LLC are further governed by its " operating agreement ". An owner of an LLC is called a "member", rather than

1421-571: The articles of organization, the Registered Agent will be designated. Many states have an initial filing fee along with an annual fee and annual report filing requirement necessary for an L3C to maintain its legal status. Following filing, the members of the L3C must execute a formal operating agreement . In the operating agreement, L3Cs need to define its purpose per the provisions of IRS Treasury Regs.Sec.53.4944-3(a): In addition to meeting IRS Treasury Regs.Sec.53.4944-3(a), many states require

1470-457: The business and who act as agents for the organization. A manager-managed selection does not necessarily mean that members lose their voting rights on material issues regarding the business unless indicated or contracted otherwise within the operating agreement. Members of an L3C are considered a fiduciary of the organization. Depending on a member's role in the organization, they may have varying fiduciary duties. Two common fiduciary duties are

1519-461: The business. While L3Cs have a primary objective of accomplishing a social mission, L3Cs can have a secondary objective of raising profit. The profits can be distributed to members similar to an LLC. This characteristic is a key defining feature between L3Cs and non-profits. The default distribution is by the percentage of ownership; however, members can contract otherwise within the operating agreement on how profits are distributed. The ability for

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1568-587: The classification of unincorporated business associations for the purpose of U.S. federal income tax law was governed by the " Kintner regulations", which were named after the prevailing taxpayer in the 1954 legal precedent of that name. As promulgated by the Internal Revenue Service (IRS) in 1960, the Kintner regulations set forth a complex six-factor test for determining whether such business associations would be taxed as corporations or partnerships. Some of these factors had equal significance, so that

1617-421: The different obligations from state-to-state. The creation of L3C legislation is reliant on the establishment of a state statute. To create such a statute, legislation must be passed that amends the state's general limited liability company (LLC) law. Note that a business can operate as an L3C within a state that does not have an L3C statute by incorporating in a state that does have an L3C statute and filing as

1666-477: The flexibility that they provide to business owners; depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership, and, under certain circumstances, LLCs may be organized as not-for-profit. In certain U.S. states (for example, Texas), businesses that provide professional services requiring a state professional license, such as legal or medical services , may not be allowed to form an LLC but may be required to form

1715-507: The implied covenant of good faith and fair dealing). Under 6 Del. C. Section 18-101(7), a Delaware LLC operating agreement can be written, oral or implied. It sets forth member capital contributions, ownership percentages, and management structure. Like a prenuptial agreement, an operating agreement can avoid future disputes between members by addressing buy-out rights, valuation formulas, and transfer restrictions. The written LLC operating agreement should be signed by all of its members. Like

1764-404: The label "L3C" or "low-profit limited liability company" to appear in the name of the organization. Each state may have state-specific requirements that govern L3C formation. The lifetime or duration of an L3C usually extends beyond the life of its members because it takes on its own legal personhood. Thus, the death or withdrawal of a member does not impact the existence of the L3C. L3C's have

1813-403: The members are not personally responsible for the contracts, debts, and/or actions of the business. In rare circumstances, members may be held further liable under the doctrine of piercing the corporate veil . Through piercing the corporate veil, courts remove the protection of limited liability and hold members of the entity personally liable for the business's contracts, debts, and/or actions of

1862-421: The members) or as an S corporation (entity level income and loss passes through to the members). Some commentators have recommended an LLC taxed as an S-corporation as the best possible small business structure. It combines the simplicity and flexibility of an LLC with the tax benefits of an S-corporation (self-employment tax savings). Some legal scholars argue that corporate income taxes are intended to limit

1911-400: The operating agreement provides otherwise, as permitted by statute in the state where the LLC was organized. The limited liability company has grown to become one of the most prevalent business forms in the United States. Even the use of a single member LLC affords greater protection for the assets of the member, as compared to operating as an unincorporated entity. Effective August 1, 2013,

1960-480: The option to be member-managed or manager-managed. This distinction should be made within the operating agreement of the business. The default is member-managed which means that the members of the L3C are responsible for delegating and performing the day-to-day operational functioning of the business along with determining strategic direction for the business. When an L3C is manager-managed, the members designate either members or non-members to take on managerial roles for

2009-560: The power of corporations and to offset the legal benefits corporations enjoy, such as limited liability for their investors. There is concern that LLCs, by combining limited liability with no entity-level taxation, could contribute to excessive risk-taking and harm to third parties. Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple member LLC who operate without one may encounter problems. Unlike state laws regarding stock corporations, which are very well developed and provide for

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2058-634: The presence of only half of them would result in classification as a partnership. Accordingly, the Wyoming Legislature tailored its statute to grant LLCs particular corporate features without exceeding this threshold. For several years, other states were slow to adopt the LLC form because it was unclear how the IRS and courts would apply the Kintner regulations to it. After the IRS finally decided in 1988 in Revenue Ruling 88-76 that Wyoming LLCs were taxable as partnerships, other states began to take

2107-403: The primary characteristic it shares with a partnership is the availability of pass-through income taxation . As a business entity, an LLC is often more flexible than a corporation and may be well-suited for companies with a single owner. Although LLCs and corporations both possess some analogous features, the basic terminology commonly associated with each type of legal entity, at least within

2156-596: The purposes for which L3Cs can be created, consistent with the proposed examples of PRIs set forth by the IRS in 2012, unanimously passed the Illinois Senate on April 17, 2013, and has been referred to the Illinois House Rules Committee. The expanded clause would make Illinois the first state to authorize L3Cs whose purposes may reflect the whole range of statutorily sanctioned PRIs to include religious, scientific, and literary organizations. Legislation

2205-463: The requirement while allowing foundations to receive a return. While L3Cs are a separate legal form of business entity, L3Cs structure most closely emulates that of a limited liability company (LLC). The most notable difference between L3Cs and LLCs is that L3Cs are required to have a socially beneficial mission as their primary objective. Below are several noteworthy characteristics of L3Cs: L3Cs are formed by filing articles of organization with

2254-403: The same term [REDACTED] This disambiguation page lists articles associated with the title L3C . If an internal link led you here, you may wish to change the link to point directly to the intended article. Retrieved from " https://en.wikipedia.org/w/index.php?title=L3C&oldid=1010946235 " Category : Disambiguation pages Hidden categories: Short description

2303-495: The social benefits of a non-profit organization, and the branding and market positioning advantages of a Benefit Corporation . The L3C is obligated to be mission-driven by law which gives a clear order of priorities while also aligning with Lang's initial design intention of being a structure that can take donations from foundations. The L3C makes it easier for socially oriented businesses to attract investments from foundations and additional money from private investors. Unlike

2352-636: 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 in order to maintain their tax-exempt status. While foundations usually meet this requirement through grants, investments in L3Cs and charities that qualify as PRIs can also fulfill

2401-665: The understanding of how L3C funding traditionally flows, it is beneficial to break it into three segments. Since the creation of L3Cs, there have been both proponents and opponents to this legal form of business entity. Below outlines several key arguments for both sides. The types of businesses that can become L3Cs is broad and usually acceptable as long as it meets state statute requirements. Existing L3C businesses are in fields including but not limited to: alternative energy, food bank processing, media consulting, art funding, job creation programs, economic development, real estate, environmental remediation, and medical research. One example

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