New US legislation boost for the social capital market

The L³C, a new form of limited liability company (LLC), has been accepted into law in the US state of Vermont.

According to Americans for Community Development (ACD), a coalition of organisations promoting programme-related investment (PRI), the L3C “combines the best features of the LLC with the socially beneficial focus of a non-profit”.  It embodies the operating efficiencies of a for-profit along with a reduced regulatory structure.

L³C (Low-Profit Limited Liability Company) uses the concept of PRI to bring together foundations, businesses and other investors to make important investments that otherwise would not occur, as it creates an organisation with social objectives but which also operates “according to for-profit metrics”.  Under L³C status, a foundation and its partner organisations retain ownership and management rights of the L³C while also having an opportunity to recover their principal investment as well as potentially realising a capital gain.

The L³C is specially designed so that its members can be any assortment of individuals, government agencies, foundations, non-profits, and for-profit corporate entities which have made different types of contributions in exchange for their membership. It is particularly suited to different classes of investors with different levels of risk.

Types of investments targeted include low-income housing projects; direct investment in businesses in distressed communities; and environmentally aware farming. 

Arthur Wood, VP Social Financial Services at Ashoka, an ACD member, said: “This is a clear step forward. The L³C will give the social sector access to a lower cost of capital, while providing incentives to corporates to enter the social market.”  He added, “We are also discussing with international development agencies, lawyers, and corporates how this may be applicable internationally. “

For more information, visit the Americans for Community Development website.