Enacts provisions relating to the formation of low-profit limited liability companies which further the accomplishment of one or more charitable or educational purposes.
TITLE OF BILL: An act to amend the limited liability company law, in relation to low-profit limited liability companies
PURPOSE: To authorize the creation of a new kind of company, the low-profit limited liability company.
SUMMARY OF PROVISIONS:
Section 1 Amends § 102 of the Limited Liability Company Law § 102 by adding a new subdivision (ii) to define "Low-profit limited liability company" as an LLC that satisfies at all times the following requirements: (i) to accomplish one or more charitable or educational purposes within the meaning of section 170(c)(2)(B) of the Internal Revenue Code, and would not have been formed but for its relationship to the accomplishment of charitable or educational purposes; (ii) its purpose is not the production of income or the appreciation of property; and (iii) does not engage in political activities or or legislative purposes within the meaning of IRS code 170(c)(2)(D).
Section 2. Amends § 203(e) of the limited liability company law by adding a new paragraph (7) as a statement of purpose of formation of the company that the company is a low-profit limited liability company.
Section 3. Amends 204 of the Limited Liability Company Law § 204 by adding a new subsection (j) to require that the company shall include in its name the words "low-profit limited liability company" or the abbreviations "L3C" or "L3C", with or without periods or other punctuation.
Section 4. Amends 211(d) of the Limited Liability Company Law by adding a new paragraph (9) to allow amendment of the articles of incorporation if needed to meet any of the requirements set out in section 102(o) (Majority in interest of the members).
Section 5 Amends 701(a) of the Limited Liability Company Law by adding a new paragraph (6) to allow dissolution if the limited liability company is a low-profit limited liability company that has ceased to meet any of the requirements set out in section 102(o) of this chapter and has failed for 90 days after ceasing to meet those requirements to file articles of amendment with the department of state amending its name to conform with the requirements of section 204 of this chapter governing limited liability company names.
EXISTING LAW: New bill.
JUSTIFICATION: In today's economic climate, it is important for public policy, business, and nonprofit leaders to think creatively and to implement innovative, responsible investment ideas that will empower entrepreneurs, and private sector investors to invest in socially responsible opportunities that also reduce risk. The L3C is an important tool to accomplish these socially responsible economic goals. The L3C or Low-Profit Limited Liability Company is law in five states and several other states are considering passing this legislation. The L3C operates in the space between a nonprofit
organization and a for-profit entity. The L3C is designated as low-profit with charitable or educational purpose and can have multiple applications and benefits. The L3C has been called the "for-profit with a nonprofit soul" by its creator Robert Lang.
The L3C is a type of LLC. It is a for-profit entity, not a charity or nonprofit entity, and is treated as an LLC for legal and tax purposes. It is flexible, designed to allow a mix of foundations, trusts, endowments, pension plans, individuals, corporations, and governmental entities to partner in order to achieve social objectives while operating in a for-profit business structure. It has the liability protection of a corporation and the flexibility of a partnership, but unlike a standard LLC, it is explicitly formed to further a socially beneficial purpose and qualify as a Program Related Investment from private foundation partners. This flexible structure allows for greater financing structures to be utilized in structuring social ventures. In short, it is a new legal entity combining financial advantages of an LLC with social advantages of non-profit.
FISCAL IMPLICATIONS: None.
EFFECTIVE DATE: Immediate.
STATE OF NEW YORK ________________________________________________________________________ 5097 2013-2014 Regular Sessions IN SENATE May 8, 2013 ___________Introduced by Sen. GOLDEN -- read twice and ordered printed, and when printed to be committed to the Committee on Corporations, Authorities and Commissions AN ACT to amend the limited liability company law, in relation to low- profit limited liability companies THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Section 102 of the limited liability company law is amended by adding a new subdivision (ii) to read as follows: (II) "LOW-PROFIT LIMITED LIABILITY COMPANY" MEANS A LIMITED LIABILITY COMPANY THAT HAS SET FORTH IN ITS ARTICLES OF ORGANIZATION A BUSINESS PURPOSE THAT SATISFIES, AND THAT IS AT ALL TIMES OPERATED TO SATISFY, EACH OF THE FOLLOWING REQUIREMENTS: (I) THE LIMITED LIABILITY COMPANY SIGNIFICANTLY FURTHERS THE ACCOM- PLISHMENT OF ONE OR MORE CHARITABLE OR EDUCATIONAL PURPOSES WITHIN THE MEANING OF SECTION 170(C)(2)(B) OF THE INTERNAL REVENUE CODE OF 1986 (26 U.S.C. S 170(C)(2)(B)), AND WOULD NOT HAVE BEEN FORMED BUT FOR ITS RELATIONSHIP TO THE ACCOMPLISHMENT OF CHARITABLE OR EDUCATIONAL PURPOSES; (II) NO SIGNIFICANT PURPOSE OF THE LIMITED LIABILITY COMPANY IS THE PRODUCTION OF INCOME OR THE APPRECIATION OF PROPERTY; PROVIDED, HOWEVER, THAT THE FACT THAT THE LIMITED LIABILITY COMPANY PRODUCES SIGNIFICANT INCOME OR CAPITAL APPRECIATION SHALL NOT, IN THE ABSENCE OF OTHER FACTORS, BE CONCLUSIVE EVIDENCE OF A SIGNIFICANT PURPOSE INVOLVING THE PRODUCTION OF INCOME OR THE APPRECIATION OF PROPERTY; AND (III) NO PURPOSE OF THE LIMITED LIABILITY COMPANY IS TO ACCOMPLISH ONE OR MORE POLITICAL OR LEGISLATIVE PURPOSES WITHIN THE MEANING OF SECTION 170(C)(2)(D) OF THE INTERNAL REVENUE CODE OF 1986 (26 U.S.C. S 170(C)(2)(D)).EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD10810-01-3 S. 5097 2
S 2. Paragraph 7 of subdivision (e) of section 203 of the limited liability company law, as added by chapter 470 of the laws of 1997, is amended to read as follows: (7) IF THE COMPANY IS A LOW-PROFIT LIMITED LIABILITY COMPANY, AS DEFINED IN SUBDIVISION (II) OF SECTION ONE HUNDRED TWO OF THIS CHAPTER, THAT THE COMPANY IS A LIMITED LIABILITY COMPANY; AND (8) any other provisions, not inconsistent with law, that the members elect to include in the articles or organization for the regulation of the internal affairs of the limited liability company, including, but not limited to, (A) the business purpose for which the limited liability company is formed, (B) a statement of whether there are limitations on the authority of members or managers or a class or classes thereof to bind the limited liability company and (C) any provisions that are required or permitted to be included in the operating agreement of the limited liability company pursuant to section four hundred seventeen of this chapter. S 3. Subdivisions (g), (h) and (i) of section 204 of the limited liability company law, subdivision (i) as added by chapter 316 of the laws of 2005, are amended and a new subdivision (j) is added to read as follows: (g) shall not, unless the approval of the state department of social services is attached to the articles of organization or application for authority, contain the word "blind" or "handicapped." Such approval shall be granted by the state department of social services if in its opinion the word "blind" or "handicapped" as used in the limited liabil- ity company's proposed name will not tend to mislead or confuse the public into believing that the limited liability company is organized for charitable or nonprofit purposes related to the blind or the hand- icapped;
[and](h) shall not, unless the approval of the attorney general is attached to the articles of organization or application for authority, contain the word "exchange" or any abbreviation or derivative thereof. Such approval shall not be granted by the attorney general if in his or her opinion the use of the word "exchange" in the limited liability compa- ny's proposed name would falsely imply that the limited liability compa- ny conducts its business at a place where trade is carried on in securi- ties or commodities by brokers, dealers or merchants [.]; (i) shall not contain the following terms: "school," "education," "elementary," "secondary," "kindergarten," "prekindergarten," "preschool," "nursery school," "museum," "history," "historical," "historical society," "arboretum," "library," "college," "university" or other term restricted by section two hundred twenty-four of the educa- tion law; "conservatory," "academy," or "institute" or any abbreviation or derivative of such terms, shall have endorsed thereon or annexed thereto the consent of the commissioner of education [.]; AND (J) SHALL, IN THE CASE OF A LOW-PROFIT LIMITED LIABILITY COMPANY, CONTAIN THE WORDS "LOW-PROFIT LIMITED LIABILITY COMPANY" OR THE ABBREVI- ATIONS "L3C" OR "L3C", WITH OR WITHOUT PERIODS OR OTHER PUNCTUATION. S 4. Paragraphs 8 and 9 of subdivision (d) of section 211 of the limited liability company law are amended to read as follows: (8) the discovery of a materially false or inaccurate statement in the articles of organization; [and](9) IF THE LIMITED LIABILITY COMPANY IS A LOW-PROFIT LIMITED LIABILITY COMPANY, ITS FAILURE TO MEET ANY OF THE REQUIREMENTS SET OUT IN SUBDIVI- SION (II) OF SECTION ONE HUNDRED TWO OF THIS ARTICLE; ORS. 5097 3
(10) the decision to change any other statement in the articles of organization. S 5. Paragraph 5 of subdivision (a) of section 701 of the limited liability company law, as amended by chapter 420 of the laws of 1999, is amended and a new paragraph 6 is added to read as follows: (5) the entry of a decree of judicial dissolution under section seven hundred two of this article
[.]; OR (6) IF THE LIMITED LIABILITY COMPANY IS A LOW-PROFIT LIMITED LIABILITY COMPANY THAT HAS CEASED TO MEET ANY OF THE REQUIREMENTS SET OUT IN SUBDIVISION (II) OF SECTION ONE HUNDRED TWO OF THIS CHAPTER AND HAS FAILED FOR NINETY DAYS AFTER CEASING TO MEET THOSE REQUIREMENTS TO FILE ARTICLES OF AMENDMENT WITH THE DEPARTMENT OF STATE AMENDING ITS NAME TO CONFORM WITH THE REQUIREMENTS OF SECTION TWO HUNDRED FOUR OF THIS CHAP- TER GOVERNING LIMITED LIABILITY COMPANY NAMES. S 6. This act shall take effect immediately.