Page 115 - Social Enterprise A New Business Paradigm for Thailand

1. The primary purpose of the investment must be to accomplish one or more charitable
purposes.

2. The significant purpose must not be the production of income or the appreciation of property.
3. The investment must not be intended for political or legislative purposes.

To qualify as an L3C, the company’s governing documents must explicitly incorporate these
conditions and objectives as required by law. Registration as an L3C is only possible in U.S. states
that have enacted legislation enabling this specific form of entity. Vermont was the first state to
do so in 2008. Currently, about a dozen other states have passed similar legislation. However,
L3Cs can also operate in states without such laws by registering in a state that recognizes L3Cs
and then conducting business as a foreign entity or through an appointed representative in other

states.

Today, L3Cs operate across diverse sectors, including renewable energy, food processing, social
services, welfare consulting, media production, arts support, job creation, economic
development, affordable housing for low-income individuals and the elderly, medical device
development for use in developing countries, environmental restoration, and medical research.

One notable example is SEEDR, an L3C based in Atlanta focused on public health. It received
investment from the Gates Foundation in 2009 to develop vacuum-sealed containers for
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transporting and storing vaccines and other medications in developing countries. The Gates
Foundation’s use of PRIs began with a pilot investment of US$400 million in 2009 and expanded
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to US$1.5 billion by 2016. In practice, L3Cs can receive donations and investments from a variety
of sources beyond private foundations. These may include trusts, endowments, pension funds,
corporations, individual investors, and even public sector agencies or other businesses.
Additionally, the L3C designation itself serves as a brand signal to the public, highlighting that the
company operates for a social purpose. This can help attract consumers who are interested in
supporting socially responsible products and services.

However, L3Cs are subject to the same tax obligations as other for-profit entities. They are not
exempt from income tax and do not receive any special tax advantages. Currently, only a limited

number of states in the U.S. have legislation recognizing L3Cs, and the Internal Revenue Service
(IRS) has not issued a universal ruling that automatically qualifies all L3Cs for program-related
investments (PRIs). Therefore, foundations that wish to invest in an L3C must apply for an
individual IRS letter ruling to confirm the investment qualifies as a PRI, a process that is time-

76 Joseph P. Glackin, What Exactly is a L3C?, BC Law Lab, Source: https://bclawlab.org/eicblog/2017/3/21/what-
exactly-is-a-l3c, March 2017.
77 Paul Brest, Investing for Impact with Program-Related Investments, A report on strategic investing at the Bill and
Melinda Gates Foundation, Making Markets Work for the Poor, Summer 2016.
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