L3C Aims to Aid Funding Woes
On Friday, March 16, Cultural Strategies Initiative
The Cultural Strategies Initiative (CSI) Executive Director, Paul Nagle, welcomed attendees and introduced the panelists: Robert Lang, the creator of the L3C as a business model; Michael Martin, an attorney with L3C and nonprofit experience; and Michael DiFonzo, a co-author of the upcoming paper, “L3C and the Arts”. Audience members were invited to ask questions throughout the evening, rather than holding discussion for the end.
The 120-minute presentation described the Low-profit Limited Liability Company structure as a newer, less regulated alternative to current tax-exempt statuses. All three panelists represented the L3C training and advocacy organization Americans for Community Development. Robert Lang focused on how much easier L3Cs are to register and disband than the typical 501(c)3. He stressed the “venture capital”-style investment structure available to Low-profit Limited Liability Company funders. Instead of framing contributions as a “given away” donation, funders would be presented with a Business Plan and choose to make an investment with the potential to realize gains.
Already law in 9 states – and therefore recognized in all 50 – the L3C is designed to promote foundation, corporate, and individual funding partnerships in social enterprise. Foundations, in particular, are the intended lead investment partners, while individuals and corporations could then benefit from the lower, blended risk of becoming “second tier investors” just as venture capitalists do in for-profit start-ups. Michael Martin further explored the benefits for foundations especially, in that funds used for Program-Related Investment into L3C projects are excluded from the assets on which their federally mandated 5% distribution is calculated. He also highlighted how much more clearly this partnership represented a foundation’s involvement in the area or community served, as in his experience with faith-based organization clients.
Having heard Robert Lang field audience questions about if government funding like tax credits is still acceptable (It is.) or if an L3C can lobby (It cannot.) and Michael Martin answer concerns about running an L3C without a written Operating Agreement (You shouldn’t.), Michael DiFonzo – with a corroborating comment from one of his paper co-authors, Bernard Hall – attempted to connect the Low-profit Limited Liability Company to a New York arts organization’s perspective. He noted that both the artistic community as an industry and its funders are slow to change. The L3C movement is only 4 years old and not-for-profit theatrical production companies took nearly a decade to adopt a new arrangement structure for their Broadway transfers; he expected this process to be similar acceptance over time. In his opinion, the biggest difference meant a shift in thinking for art producers. Forming a Low-profit Limited Liability Company is only a good fit for an arts program if the social enterprise anticipates generating income from its operation. The Business Plan that the L3C presents to potential investors, the budget by which they determine the investment pool required, and the continued overhead expenses all hinge on thinking of a project in the arts as a product or service purchased for a cost that sustains its operation.
Obviously, not all Off-Off-Broadway producing organizations can think of their works that way. If you do have a program or programs that fit that description, Americans for Community Development offers much more information on their website