After more than a decade in the banking and finance industry, Jim Delaney's latest endeavor may well have prompted head-scratching among a few of his former colleagues in the for-profit world.
   
Engine L3C is a unique consulting shop that charges non-profits about a fifth of what its services would ordinarily cost elsewhere. The work is carried out by teams of young professionals, who volunteer their time and talents for six months in exchange for networking and professional development.
   
Delaney says he's been told he should raise his rates, but profits aren't the most important bottom line to him these days. He wants to make a living, and he hopes to scale his company to other markets, but most of all he wants to make a difference.
   
Social entrepreneurs are nothing new to the Twin Cities, which has a decades-long tradition of using commerce to support good works, from Thrivent Financial to Finnegans Beer. But with a growing number of companies straddling the line between for-profit and non-profit, new questions are emerging about whether we need a new laws and corporate structures to support and regulate them.
   
Delaney typifies this emerging class of entrepreneurs who say they are motivated by good more than greed. His company doesn't neatly fit the old either/or distinctions between capitalism and charity. He recruits small teams of young professionals, many of them from the for-profit world, and assigns them to various six-month projects for non-profits. One team, for example, spent half a year interviewing YMCA leaders and compiled a best-practices handbook that's now used at all of the organization's camps and branches.

"Our business model fits right in between for-profits and non-profits," says Delaney.
   
Both of those labels carry a load of connotations to people on the opposite side of the divide, and Delaney didn't want those stereotypes getting in the way. So he became one of the first business owners in Minnesota (and possibly the only one so far) to incorporate as an L3C, or low-profit limited liability corporation.
   
A New York foundation leader, Robert Lang, pitched the L3C concept at a 2006 Aspen Institute philanthropy conference, and it's since been adopted by about half a dozen states, including Illinois, Michigan and Vermont (where Delaney's Engine L3C is incorporated). The idea is to give so-called "social good" companies an alternative legal status that falls somewhere in between a for-profit LLC and a 501(c)3 non-profit.

The Ps and Qs of L3Cs
   
In most aspects, these companies are treated the same as LLCs. In theory, L3Cs can more easily compete for private foundation dollars than a pure for-profit could, although the hybrid can only accept funding when the company's work supports the foundation's mission. L3Cs aren't tax-exempt like a non-profit, but they don't have the same reporting requirements either. Unlike non-profits, L3Cs can raise capital from investors instead of donors, which creates new fundraising opportunities. And again in theory, L3Cs have more freedom than LLCs to pursue motives other than generating a greater financial returns for investors.

But legally speaking, L3Cs remain untested. These companies don't receive any special treatment from the Internal Revenue Service or most states, which regulate L3Cs the same as LLCs. If that doesn't change (and there's no indication it will in the foreseeable future), the L3C's primary usefulness may be as a marketing tool, a way to quickly convey a company's intentions in a few characters.
  
That's helped to generate skepticism about the need for a separate L3C status, especially from the legal and non-profit communities. Do we really need to create new legal structures to, in essence, help for-profit companies with their marketing efforts?
   
Brad Brown, executive director of Social Venture Partners Minnesota, understands the skepticism and he isn't ready to endorse the L3C concept, but he says there is "absolutely" a need for new tax and legal structures that reflect the new convergence of social missions and profits.
   
"L3Cs are, in my point of view, an experiment. There aren't a lot of them, and we really don't know how well they're going to work," says Brown. "But what they represent is a response to this need for corporate forms and tax treatment to catch up with the realities of these emerging business models."

Two trends are driving the convergence of for-profit and social missions, says Brown. One is that a decrease in support from donors and government has traditional non-profits looking for ways to generate revenue. And two, there's a new generation of entrepreneurs who are less likely to divorce their personal values from their work and business.

Being a B Corp

L3Cs aren't the only emerging structure aimed at better supporting this new wave of activity. Two states, Maryland and Vermont, recently signed legislation supporting Benefit Corporations, or B Corps. It's a certification available to businesses that write certain social, environmental and accountability standards into their charters.
   
Minnesota has one certified B Corp: Sunrise Community Banks of St. Paul. Nikki Foster, the banks' chief corporate responsibility officer, says applying to become a B Corp was a way to verify values the company already held. "It was something that fit us, [so] we didn't have to force it," she says.
   
It's a privately-owned, family-run business, but Sunrise maintains outside directors on its boards and has an independent audit committee, factors that won it points in the B Corp certification process. It built LEED-certified green buildings for its branches in the Como and Frogtown neighborhoods. It offers a socially responsible deposit fund, and 70 percent of its loans go to low-income urban areas.
   
As a B Corp, the banks get discounts on certain software and services through the organization that grants the certification, says Foster. They also get a marketing tool for promoting their values to employees, customers, and the community.

An Ongoing Discussion
   
There are, of course, many other ways to accomplish those goals. Same goes for the stated benefits of being an L3C. "Everything you can do with an L3C you can also do with an LLC," says Dean Willer, an attorney at Winthrop & Weinstine in Minneapolis who helped Delaney incorporate his company as a Vermont L3C.
   
Still, new tools such as L3C and B Corps continue to generate discussion and interest.
   
Sen. John Marty (DFL-Roseville) has been preparing a bill to better support Minnesota companies that incorporate social missions.
  
The Maslon law firm in Minneapolis recently started a group dedicated to social enterprise. Attorney Paul Chestovich says he's had about half a dozen serious discussions in the last ten months, but he's yet to have a client move forward with an alternative incorporation method.
   
Meanwhile, Delaney says he's finding a community that seems interested in supporting an organization that's pioneering a new way: "They've been hit up for donations for so many years by so many non-profits," he says, "that I think they're looking for something a little different."

Dan Haugen is The Line's Innovation and Jobs editor. Contact him at [email protected].


Photos, top to bottom:

Jaquie Berglund, CEO of Finnegans Irish Amber (l.) meets with Jenny Lappegaard and Jim Delaney of Engine L3C

University Bank's sign...

...and its window logo mark it as a branch of the B-Corp-certified Sunrise Banks.

Nikki Foster, chief corporate responsibility officer for Sunrise

All photos by Bill Kelley