Difference Between LLC and L3C
An L3C (low-profit limited liability company) is a for-profit LLC that satisfies three requirements: It significantly furthers the accomplishment of one or more charitable or educational purposes within the meaning of Sec. An L3C, though, is a hybrid of an LLC and nonprofit business model, where an organization operates to benefit the general public without shareholders and without a profit motive. L3Cs were designed to make it easier for socially responsible businesses to attract money from foundations and private investors.
State Recognition and Structure
Although L3Cs can operate in all 50 states, incorporation is currently allowed in certain states only: Illinois, Kansas, Louisiana, Maine, Michigan, Missouri, North Dakota, Rhode Island, Utah, Vermont, Wyoming and the federal jurisdictions of the Crow Indian Nation of Montana and the Oglala Sioux Tribe. An L3C registered in the eight states that allow it can operate anywhere in the country. The tiered structure of L3Cs allows business owners to separate assets and strengthen liability protection among different business ventures without starting a new LLC from scratch.
Difference Between LLC and Nonprofit
An LLC is a for-profit business venture, and a nonprofit is an organization created for a charitable cause. The chief difference between an LLC and an L3C is the purpose for which it was created, with L3Cs focusing on achieving a socially beneficial objective or mission.
501c and 501c3 Organizations
Both types of organizations are exempt from federal income tax; however, a 501(c)(3) allows its donors to write off donations, unlike a 501(c).
Setting Up a Tax-Exempt Organization
Understanding the differences between nonprofits on a state level and 501(c)(3) organizations is essential for setting up a tax-exempt organization.