L3cs: An Innovative Choice for Urban Entrepreneurs and Urban Revitalization
Thompson, Dana, American University Business Law Review
Social enterprises offer fresh ways of addressing seemingly intractable social problems, such as high levels of unemployment and poverty in economically distressed urban areas in the United States. Indeed, although social enterprises have deep and longstanding roots, the recent iteration of the social enterprise movement is gaining momentum in the United States and globally.1 Though there is not a singularly accepted legal definition of social enterprises, they are popularly known as businesses that use forprofit business practices, principles, and discipline to accomplish socially beneficial goals.2 Social entrepreneurs, those who operate social enterprises, eschew a traditional notion of charity, which primarily relies on charitable donations to eliminate societal ills and instead employ marketoriented strategies to achieve social good.3 Social entrepreneurs are not just focused on the bottom line and seeking financial returns but seek to obtain double-bottom line (financial and social) or triple-bottom line (financial, social, and environmental) objectives.4 The Grameen Bank is an example of an early social enterprise. The bank was established in 1976 by Muhammad Yunus to combat poverty in rural villages in Bangladesh by extending small loans to rural village women to allow them to establish businesses and provide them with self-employment opportunities.5
Social enterprises blur the lines among the nonprofit, for-profit, and government sectors, and given their innovative and distinct characteristics, require new legal entities to meet their needs.6 New legal entity forms, such as the low-profit limited liability company (?"L3C?"), the benefit corporation, and the flexible purpose corporation, were created in response to the needs of social entrepreneurs for new legal entities, other than traditional for-profit and nonprofit entities, that can attract the necessary funding for their ventures while also achieving their social missions.7 Many social entrepreneurs, their lawyers, and others, who work with and support social entrepreneurs, support the creation of new hybrid legal entities, which better reflect the socially beneficial pursuits and financial concerns of social entrepreneurs.8
As with other social entrepreneurs, minority urban entrepreneurs determined to use their businesses to make a profit and provide positive social outcomes in economically distressed urban areas also need innovative legal entities to attract funding and fulfill their social missions. The L3C, though needing changes to enhance its effectiveness, holds promise for minority-owned small businesses in urban areas with socially beneficial goals that are in need of capital to establish and operate their businesses.
It is important to establish viable minority-owned social enterprises in urban areas because many urban areas in the United States face substantial challenges, such as high levels of poverty and unemployment.9 Despite these problems, urban areas in the United States are significant to the national economy and are valuable underutilized resources that need innovative and strategic solutions10 to address their problems and help the United States become even more competitive in the global market. Social enterprises in these areas, particularly those owned by people of color, could play a role in revitalizing these financially troubled urban areas by providing much needed jobs to residents and much needed revenues, products, and services to these areas. Organizations, such as Greyston Bakery in New York and Sweet Beginnings, LLC in Chicago, provide compelling examples of for-profit urban social enterprises that have developed successful businesses while also providing jobs in their respective urban areas to individuals with considerable barriers to employment.11 But many minority-owned small businesses in urban areas, including social enterprises, confront a number of challenges that hinder their development and growth, including lack of access to capital. …