L3C: New Type of Company Might be Good Fit for Journalism

Money!
News organizations might benefit from new ways to handle money. (Image by Tracy O via Flickr)

Fundamentally, journalism is a community service. That mission, and the values associated with it, typically are what make journalists passionate about journalism — and also often wary of the business side of news (advertising, market research, etc.). And as smart as most journalists are, most of them also don’t really seem to have the mindset or skills to manage the business side of a news operation.

So why not figure out a new way to conduct the business of news? Especially, new ways to handle the money?

Last Friday, at the Journalism Innovations II conference (held at the University of San Francisco), I learned about an interesting effort to create a new kind of business structure that could provide a way to support journalism and news.

In the morning plenary, Hollie Kernan (news director of San Francisco public radio KALW-FM) mentioned that she’s been taking a close look at the Low-Profit Limited Liability Company (L3C) model proposed by Robert Lang, CEO of the Mary Elizabeth and Gordon B. Mannweiler Foundation…

Americans for Community Development, a key resource for this effort, explains: “The L3C is a new form of limited liability company which combines the best features of a for-profit LLC with the socially beneficial aspects of a nonprofit. It is the for-profit with a nonprofit soul. …It will be a brand new tool in the foundation toolbox designed to expand the use of PRIs (Program Related Investments) and to create a vehicle which brings together government, for profit, nonprofit, individuals and corporations under one umbrella. It will attract investment capital not just charitable dollars and operate as a for profit with the benefits of for profit assessment metrics.”

The Nonprofit Law Blog further explains: “Unlike a standard LLC, the L3C has an explicit primary charitable mission and only a secondary profit concern. But unlike a charity, the L3C is free to distribute the profits, after taxes, to owners or investors. A principal advantage of the L3C is its qualification as a program related investment (PRI), an investment with a socially beneficial purpose that is consistent with and furthers a foundation’s mission. Because foundations can only directly invest in for-profit ventures qualified as PRIs, many foundations refrain from investing in for-profit ventures due to the uncertainty of whether they would qualify as PRIs.”

It seems to me that, if the L3C model gets the nod from the IRS and more state governments, this might be especially appealing to online and mobile news efforts. Venture capitalists are accustomed to supporting online and mobile media projects. Several foundations and grant programs support news and media, especially at the community level. But so far it hasn’t been easy to mix these funding sources. This new model might make new partnerships possible.

Currently, Americans for Community Development is a working to introduce L3C bills in state legislatures across the country. As of February, the Council of Michigan Foundations noted that: “only Michigan and Vermont have legally adopted L3Cs as law, as well as the Crow (Indian) Nation. Other states introducing similar legislation, said Lang, are North Carolina, Montana and Wyoming and proposed laws are now being written in Illinois, Oregon and Washington.” Google News and Google Blog Search are easy ways to follow L3C developments.

The Peoria, Ill. Newspaper Guild reportedly is pushing for the Journal-Star newspaper to become an L3C. The Minnesota Newspaper Guild is advocating the same for the Star Tribune.

Brian Burnham Jones, who recently created a L3C company in Vermont, noted in TriplePundit on Apr. 9: “I was warned: before I raise start-up capital and kick up my socially beneficial operations I should wait to hear what the IRS will say about the tax implications of the new legal entity. The IRS ruling will be momentous because it will determine the ultimate fate of my L3C and others which have recently been formed across the country. …Hopefully, the IRS will readily accept Foundation investments in L3Cs as valid PRIs (Program Related Investments). If not, then L3Cs will not be able to receive tax deductible charity funds from large foundations, and will go the way of the Dodo.”

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2 thoughts on L3C: New Type of Company Might be Good Fit for Journalism

  1. Thanks for bringing this to everyone’s attention, Amy. It’s a fascinating model, and one that implicitly recognizes that journalism has a social value beyond simple profitability that needs to be recognized in the tax code. I know it’s a news *business*. But after all, business is only one part of the equation. Providing news is the other. I often think about other social institutions, like churches or schools, that have a uniquely protected status. Maybe it’s time we found a way for journalists to be more like teachers and preachers!

  2. Pingback: Q&A with Jennifer Towery: L3Cs and the future of the Journal Star | Peoria Pundit

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