Confused About L3Cs and the Rest? Me Too. Jenny Kassan, Esq. Helps Us Out

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Business structures for Triple Bottom Line ventures are my Bermuda Triangle.  I’m whipped around to end up confused about the benefits of each structure (L3C, LLC, Special Purpose Corporation, hybrid for-profit and nonprofit) and its respective requirements and restrictions.  So I asked Jenny Kassan, managing director at Katovich Law Group, to give a primer in business entity structure.  Jenny works with environmentally friendly and socially responsible ventures.

My top takeaway from our conversation is that at some point, you’ll need a lawyer to guide you through the complexities.

Here are some other important takeaways (more clearly explained by Jenny in our conversation).

• The legal structure of your business is dictated by:
  • How you expect to fund it
  • Tax treatment (e.g., LLC’s are only taxed at the owner level, which means they aren’t double-taxed)
  • Structure (there are more constraints on how a corporation can be run, i.e., requires a board, officers, meeting minutes, etc., than on an LLC.)
• An L3C runs like a regular business and is profitable.  However, unlike a for-profit business, the primary focus of the L3C is not to make money, but to achieve socially beneficial aims, with profit as a secondary goal.  But how you measure and enforce what the primary purpose is, is a whole different issue and one that will be getting increased attention.  L3C entities are charity or education focused.  They can bring in outside equity investors and pay them a return, but the prime advantage of an L3C is eligibility for program-related funding (PRI) from foundations.  PRIs can come in the form of an equity investment or a loan.
• Cooperatives are an overlooked model that can carry a lot of rewards, such as facility to bring in investment, tax advantages and exemption from securities law.

Until you have a lawyer (or in addition to), you can listen to our conversation and check out the resources Jenny suggests below.

Resources mentioned during the interview

B Corporation information on your state’s legal requirements
Sustainable Economies Law Center
Structure Labs from Criterion Ventures

Articles
How to Raise Money But Not Break the Bank
Protecting Your Mission: Legal Tools to Keep Your Company on the Righteous Path
What’s the Difference Between a Worker Co-op and a Producer Co-op?

About Jenny Kassan

Jenny is the Managing Director at Katovich Law Group, CEO of Cutting Edge Capital and Co-Director of the Sustainable Economies Law Center.  She writes (terrific and relatable!) columns for East Bay Express on common legal issues that social ventures face.  Katovich Law Group is B Corporation and virtual firm.