L3Cs and B-Corps

L3Cs and B-Corps

     A recent article in The New York Times (A Quest for Hybrid Companies That Profit, but Can Tap Charity, Oct. 12, 2011, B1) sadly rates a grade of “D.”

     Notwithstanding this barely passing grade, the article is to be commended for at least two points.  First, it did not simply repeat the propaganda lines of the L3C promoters.  Second, it is to be well commended for quoting my friend Bill Callison and his explanation for why these new structures are not necessary.

     Still, the grade is the consequence of the article failing to properly describe the structures being discussed and, secondly, a failure to fully explicate their purported justifications.

     As to the first failing, it was set up by the first line of the article, it stating “A new type of company….”  Having suggested that there is singular type of company in consideration, the article then goes on to discuss all of flexible-purpose companies, Benefit Corporations and L3Cs.  Of course, these are each radically different, each purporting to respond to a different pressure.

     The second failing was in not distinguishing between the structures being discussed.  As to the L3C, it is a (in my view an entirely illegitimate) mechanism by which it is (incorrectly) suggested that these structures will be more able to receive a Program Related Investment from a foundation than they would absent a L3C structure.

     In contrast, the flexible-purpose and the B Corporation are each intended to be corporate structures (not LLCs) in which the statutory obligation of the directors to maximize return to the shareholders is reduced.  IMHO, the case has not been made that either of these separate structures is necessary, i.e., there has not been a showing that these aims cannot be achieved within the existing business organization statutes.