Innovative Organizational Structures in Development

July 7, 2010

Linda Crompton, President and CEO, BoardSource

Building on my last blog entry’s theme of social enterprise, I have been thinking about the implications for board governance, and nonprofit boards themselves, of some of the new legal entities now under construction.  Some or all of these may be controversial within the nonprofit sector, but it is uplifting that instead of hearing only about what nonprofits can learn from corporations, now we are witnessing corporations adopting ideas from nonprofits. The L3C, for example, which has not yet been ratified at the federal level but has been adopted by nine states, is an intriguing concept.  Reverting to the original rationale for forming a company, this low-profit limited liability organization is primarily geared toward meeting a social need or providing a social benefit. Not yet granted charitable taxation status, it will presumably not incur a substantial tax liability in any event since it is not designed nor even permitted to be profit maximizing, but is able to attract investment dollars and apply for foundation program-related grants and guarantees.

“B” Corporations, or “Benefit Corporations,” are another example of the type of innovative structures that are beginning to emerge, bringing with them new types of responsibilities for their boards of directors. Just last month Maryland Governor Martin O’Malley signed this new legal structure into law, requiring that B Corporations create a positive impact on society and that “boards of directors consider how decisions will affect employees, local jurisdictions, and the environment, rather than just looking at shareholders’ interests.”

These kinds of organizational innovations – and they are likely only the beginning – carry with them many unresolved issues and as yet unanswered questions.  What will the impact be on traditional nonprofit organizations? Will the new organizations end up increasing the “competition” for philanthropic dollars?  What about boards?  Where will the expertise come from to govern these new hybrid “mission + profit” organizations? For the time being, we will have to be content with framing the questions and waiting for the answers to unfold.

5 Responses to “Innovative Organizational Structures in Development”

  1. Karen Woods Says:

    It’s great to see your interest in L3Cs. May we offer another correction: the L3C is a hybrid of the LLC, so as a for-profit business, no charitable tax status has ever been intended. Tax liability is the same as any other LLC business.
    Please see the ACD Website, the Resources subtab, for additional specifics. Although full access requires membership, there is substantial information about the L3C; note “The Concept of the L3C” subtab in the About Us link.
    Karen Woods, Executive Director
    Americans for Community Development

  2. Rick Zwetsch Says:

    Hi Linda,

    Thanks for your blog post! We were the 39th L3C organized in the US (Feb ’09) and the 1st L3C operating in Colorado.

    One quick correction, L3C legislation has been passed into law in 7 states (VT, MI, IL, UT, WY, ME effective 7-1-11 and the law is on the NC Governor’s desk for signature as I’m writing this). The Crow Indian Nation and Oglalla Sioux Tribe also allow the organization of L3Cs.

    We have published a white paper: Who is the L3C Entrepreneur? The pioneers of social enterprise’s revolutionary new suffix that you and your colleagues might find interesting. You can download the paper here:

    Thanks again for your interest in the L3C and the other innovative organizational structures.

    Rick Zwetsch, Principal Partner
    interSector Partners, L3C

  3. Laurel Says:

    I am interested in more information on the L3C. Where is the information accessible online?

  4. Claudette Says:

    I’m wondering what impact or legal requirements will be felt/changed by the new Finance Reform Act that was signed into law this past week by President Obama?

    Thank you.

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