On August 3, 2010, North Carolina became the most recent state to recognize the L3C, a "low-profit limited liability company."  An L3C is a legal form of business entity created to bridge the gap between non-profit and for-profit investing by combining the financial advantages of the limited liability company (LLC) with the social advantages of a non-profit entity.  An L3C runs like a regular business and generates profits.  However, the primary focus of the L3C is not to make money, but to achieve socially beneficial objectives. 

The LLC is a hybrid entity which combines the limited liability aspects of a corporation with the pass-through tax aspects of a partnership.  Like a corporation, an LLC offers limited liability to its owners.  But, like a partnership, an LLC is not subject to two levels of tax.  Income or loss of an LLC flows to its owners and is reflected on the owners' tax returns.  An LLC is automatically treated as a partnership for tax purposes if it has two or more owners and is automatically disregarded as an entity separate from its owner for tax purposes if it has a single owner.  The owner(s) of the LLC must make an affirmative election (opt out) to treat the LLC as a corporation for tax purposes. 

Unlike the traditional LLC, the L3C must be formed to accomplish a charitable purpose in addition to a business purpose.  However, donations to an L3C are not deductible as a charitable contribution because the L3C is a for-profit entity. 

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