Low-profit limited liability companies, also called L3Cs, are a type of LLC supposedly designated for social enterprises. They were created with an IRS regulation in mind that would have made it easier for nonprofits to more easily make investments in certain for-profit enterprises. Unfortunately, the regulation never passed, and there is little legal benefit to forming an L3C. Indeed, often the difficulty of explaining to investors and lenders what an L3C even is can create significant downside.

The only benefit of forming an L3C is signaling to like-minded parties that the entity is intended to operate as a social enterprise. Social entrepreneurs should consider whether this benefit will outweigh any downsides, particularly considering that very few people know enough about L3Cs to understand the signal.