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Out of Fashion?

Posted by Deborah Davidson on May 17, 2012 10:35:49 AM

by Deborah Davidson, vice president of governance education and research


I went to a meeting at the Urban Institute this week called the “Annual IRS Form 990 and State Charity Regulation Meeting.” Many of the attendees were from state Attorneys General offices who belong to an organization of charity regulators called the National Association of State Charity Officials (NASCO). A pretty serious audience, to say the least. While sessions like this can sometimes be a bit dry, I am always looking for provocative observations or questions as they relate to nonprofit governance.

This meeting’s provocation came from a discussion on hybrids -- those quasi-nonprofits that are actually for-profits, but with a social benefit aim. The most common ones we’ve learned about are the L3C, or Low-Profit Limited Liability Company, and the B Corp, or Benefit Corporation. According to a panelist, the day of the L3C has passed, in favor of the B Corp. Or, as the speaker so elegantly put it, “L3Cs are so 2010.”

While no one is ready to sound the death knell for the L3C, Oregon Assistant Attorney General Elizabeth Grant theorized that the business model of the two entities will continue to favor the B Corp over the L3C for two main reasons: 1) Foundations have never really gotten behind the idea of program-related investments for L3Cs, and that was supposed to be their primary benefit; and 2) the B Corp laws allow the board to take the interests of stakeholders beyond the shareholders into account; shareholders who are unhappy that their profits are not maximized (a common shareholder suit) can only receive injunctive relief, not financial, which gives the board extremely wide latitude.

So, what do you think? Has the B Corp taken over for the L3C as the hybrid of choice? And if so, is the nonprofit sector in trouble, or is this an opportunity, or something in between? Let us know what you’re hearing from your networks.

For more information on hybrids, read this BoardSource topic paper.

Topics: Board Best Practices, New Trends & Resources

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