NY State Senate Bill 2015-S3550

Archive: Last Bill Status - In Senate Committee Corporations, Authorities And Commissions Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

Please enter your contact information

First Name

Last Name

Email Address

A valid email address is required.

Home address is used to determine the senate district in which you reside. Your support or opposition to this bill is then shared immediately with the senator who represents you.

Optional services from the NY State Senate:

Create an account. An account allows you to officially support or oppose key legislation, sign petitions with a single click, and follow issues, committees, and bills that matter to you. When you create an account, you agree to this platform's terms of participation.

Include a custom message for your Senator? (Optional)

Enter a message to your senator. Many New Yorkers use this to share the reasoning behind their support or opposition to the bill. Others might share a personal anecdote about how the bill would affect them or people they care about.

Actions

View Actions

	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Jan 06, 2016	referred to corporations, authorities and commissions
Feb 12, 2015	referred to corporations, authorities and commissions

2015-S3550 (ACTIVE) - Details

See Assembly Version of this Bill:: A1209
Current Committee:: Senate Corporations, Authorities And Commissions
Law Section:: Limited Liability Company Law
Laws Affected:: Amd §§102, 203, 204, 211 & 701, Lim Lil L
Versions Introduced in Other Legislative Sessions:: 2009-2010: S6726, A10414
2011-2012: S3011, A6116
2013-2014: S1825, A6005
2017-2018: A5859, A10060

2015-S3550 (ACTIVE) - Summary

Relates to establishing the L3C act regarding low-profit limited liability companies.

2015-S3550 (ACTIVE) - Sponsor Memo

                                BILL NUMBER:S3550

TITLE OF BILL:

An act to amend the limited liability company law, in relation to
establishing the L3C act regarding low-profit limited liability
companies

PURPOSE OR GENERAL IDEA:

To create low-profit limited liability companies.

SUMMARY OF SPECIFIC PROVISIONS:

Section 1 is the short title.

Section 2 amends section 102 of the limited liability company (LLC)
law to provide for the creation of a new business entity, a "low-
profit" limited liability company (L3C), whose purpose is to further
the accomplishment of one or more charitable purposes set forth within
section 170(c)(2)(B) of the internal revenue code of 1986 --
alternatively cited as 26 United States Code sec. 170( c )(2)(B)
provided however such business entity would not have been formed but
for its relationship to the accomplishment of charitable or education
purposes. L3C entities shall not have as a significant purpose the
creation of income or appreciation of property, and L3C entities shall

not have as a purpose the accomplishment of one or more political or
legislative purposes set forth within section 170(c) (2)(D) of the
internal revenue code of 1986.

Sections 3-6 amend sections 203, 204, 211 and 701, respectively, of
the limited liability company law to conform the new business entity
to the statutory requirements governing LLCs.

JUSTIFICATION:

1. Need for a new type of limited liability company (LLC).

The L3C is a low-profit limited liability company (LLC). L3Cs are a
hybrid legal structure combining the financial advantages of limited
liability companies (LLCs), with the social advantages of a non-profit
entity. An L3C runs like a regular business and is profitable, but its
primary focus is not to make money. The L3C's primary purpose is
socially beneficial aims, with profit making a secondary goal. (See,
http://americansforcommunitydevelopment.org/about.html, and see
http://en.wikipedia.org/wiki/L3C.)

L3Cs are not nonprofits; they are for-profit ventures that, under
their state charter, must have a primary goal of performing a socially
beneficial purpose, rather than earning money. The business entity
form and legislation were drafted with the goal of complying with
federal Internal Revenue Service (IRS) regulations relevant to Program
Related Investments (PRIs) by foundations. Such compliance is
anticipated to make L3Cs useful vehicles for PRI investment - and it
is hoped that such structure and compliance might obviate the need for
individual IRS private letter rulings, although as of November 10,
2009, neither the IRS and Congress had "signed off' on L3Cs (See


http://nonprofitlaw.proskauer.com/2009/11
/articles/formation/the"possibilities-of-the-13c/, and see http://www.
wisbar.org/am/template.cfm ?section= Newsletters Grouo&temol
ate=/customsource/community/
enews/newsletter.cfm&issuemonth=9&issueyear=2009&grouoname-BusL).

It is also envisioned to facilitate tranched investing by foundations,
with a PRI taking the first risk position and thereby taking much of
the risk out of the venture for other investors in lower tranches.
Under such circumstances, the rest of the investment levels or
tranches would be more attractive to commercial investment because the
PRI involvement could improve the credit rating and lower the cost of
capital.

Judging from the examples of other states that have enacted L3C
legislation, such entities are particularly favorable to equity
investment because the foundations can take the highest risk at little
or no return. Such tranched investing has been described as turning
the venture capital model on its head, giving many social enterprises
a low enough cost of capital that they are able to be self
sustainable.

II. Purpose of Low-Profit Limited Liability Companies (L3Cs).

The L3C was created by Robert Lang, CEO of the Mary Elizabeth & Gordon
B. Mannweiler Foundation, with input from tax law specialists and
members of the nonprofit sector. There are five goals underlying the
creation of L3Cs.

First, LC3s are designed to comply with IRS regulations regarding
Program Related Investments (PRIs). PRIs are IRS-sanctioned
investments made by foundations, often into for-profit business
ventures; to support charitable activities, which may involve the
potential return of capital within an established period. Assuming the
IRS confirms such compliance, or such question is obviated by
congressional action, foundations can buy ownership shares, make loans
to, or otherwise financially interact with the L3C, using all or part
of that portion of its assets that would normally be given out
annually as grants. Obviously, however, as for-profit entities, L3Cs
do not require PRIs to exist or operate.

Second, L3Cs share the operating efficiencies of a for-profit along
with a reduced regulatory structure, and the social purposes of a
nonprofit organization. As an LLC, L3Cs can bring together
foundations, trusts, endowment funds, pension funds, individuals,
corporations, other for-profits and government entities into an
organization designed to achieve social objectives while also
operating according to for-profit metrics and efficiencies.  Third, in
an L3C, a foundation and/or its partner organizations can retain
ownership and management rights of the L3C, while possibly recovering
its/their principal investment and potentially realizing a capital
gain.

Fourth, L3Cs can facilitate tranching or layering of capital
involvement into business entities with social purposes. One of the
central premises of an L3C's operation is its use of low-cost capital
in high risk ventures and its ability to allocate risk and reward


unevenly over a number of investors, thus ensuring some investors a
very safe investment with market return, and other investors (perhaps
without similar profit-making requirements) receiving less returns and
higher risk allocations. As is appropriate under the PRI structure,
foundations could assume the top risk at very low return, making the
rest of the investment far more secure.

Finally, the L3C entity and structure can create a desirable climate
for the investment of private capital. Because of its tranching
structure, an L3C could be partially funded - in a lowered-risk
tranche -- by money intended for prudent investments only, such as
state pension funds. This opens the door to trillions of dollars not
currently available for socially beneficial investment.

III. L3C Legislation in other states.

There are a number of other states that have introduced and/or enacted
L3C legislation, as have the Crow Indian Nation and the Oglala Sioux
Tribe. The states introducing and/or enacting such legislation
include:

Arkansas - introduced on March 9, 2009
Crow Indian Nation - enacted on January 13, 2009
Illinois - enacted on August 4, 2009
Missouri - introduced in February of 2009
Michigan - enacted on January 15, 2009
North Carolina - introduced on February 25, 2008
Oregon - introduced during 2009 regular session Oglala Sioux Tribe -
enacted on July 2, 2009
Tennessee - introduced in February of 2009 Utah - enacted on March 23,
2009
Vermont - enacted on April 30, 2008
Wyoming - enacted on February 26, 2009

There are a number of other states considering L3C legislation,
including Georgia, Louisiana, and Missouri.

PRIOR LEGISLATIVE HISTORY:

None. This is a new bill.

FISCAL IMPLICATIONS:

There shall be no cost to the State or localities.

EFFECTIVE DATE:

Immediately upon enactment.

2015-S3550 (ACTIVE) - Bill Text download pdf

                            
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  3550

                       2015-2016 Regular Sessions

                            I N  S E N A T E

                            February 12, 2015
                               ___________

Introduced by Sen. ESPAILLAT -- 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 estab-
  lishing the L3C act regarding 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. This act may be known and shall be cited as the "L3C act".
  S  2.  Section  102 of the limited liability company law is amended by
adding a new subdivision (n-1) to read as follows:
  (N-1) "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.
                                                           LBD02445-01-5

S. 3550                             2

  S 3. Paragraph 7 of subdivision (e) of  section  203  of  the  limited
liability company law is renumbered paragraph 8 and a new paragraph 7 is
added to read as follows:
  (7)  IF  THE  COMPANY  IS  A  LOW-PROFIT LIMITED LIABILITY COMPANY, AS
DEFINED IN SUBDIVISION (N-1) OF SECTION ONE HUNDRED TWO OF THIS CHAPTER,
THAT THE COMPANY IS A LIMITED LIABILITY COMPANY.
  S 4. 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 three new subdivisions (j),  (k)  and  (l)
are added to read as follows:
  (g)  shall  not, unless the approval of the state department of social
services OR ITS SUCCESSORS IN FUNCTION 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 OR ITS SUCCESSORS IN FUNCTION if in its opinion the word
"blind" or "handicapped" as used  in  the  limited  liability  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 handicapped; [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[.];
  (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;
  (K)  SHALL  NOT, IN THE CASE OF A LOW-PROFIT LIMITED LIABILITY COMPANY
UNLESS THE APPROVAL OF THE STATE DEPARTMENT OF SOCIAL  SERVICES  OR  ITS
SUCCESSORS  IN  FUNCTION  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 OR ITS SUCCESSORS IN  FUNCTION  IF  IN  ITS  OPINION  THE  WORD
"BLIND"  OR  "HANDICAPPED"  AS  USED  IN THE LIMITED LIABILITY 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 HANDICAPPED; AND
  (L)  SHALL  NOT, IN THE CASE OF A LOW-PROFIT LIMITED LIABILITY COMPANY
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  COMPANY'S
PROPOSED  NAME  WOULD  FALSELY  IMPLY THAT THE LIMITED LIABILITY COMPANY

S. 3550                             3

CONDUCTS ITS BUSINESS AT A PLACE WHERE TRADE IS CARRIED ON IN SECURITIES
OR COMMODITIES BY BROKERS, DEALERS OR MERCHANTS.
  S  5.  Paragraphs  8  and  9  of subdivision (d) of section 211 of the
limited liability company law are renumbered paragraphs 9 and 10  and  a
new paragraph 8 is added to read as follows:
  (8) 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 (N-1) OF SECTION ONE HUNDRED TWO OF THIS CHAPTER.
  S  6.  Paragraph  5  of  subdivision (a) of section 701 of the limited
liability company law is renumbered paragraph 6 and a new paragraph 5 is
added to read as follows:
  (5) 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  (N-1)  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 7.  This act shall take effect immediately.

Comments

Open Legislation is a forum for New York State legislation. All comments are subject to review and community moderation is encouraged.

Comments deemed off-topic, commercial, campaign-related, self-promotional; or that contain profanity, hate or toxic speech; or that link to sites outside of the nysenate.gov domain are not permitted, and will not be published. Attempts to intimidate and silence contributors or deliberately deceive the public, including excessive or extraneous posting/posts, or coordinated activity, are prohibited and may result in the temporary or permanent banning of the user. Comment moderation is generally performed Monday through Friday. By contributing or voting you agree to the Terms of Participation and verify you are over 13.

Create an account. An account allows you to sign petitions with a single click, officially support or oppose key legislation, and follow issues, committees, and bills that matter to you. When you create an account, you agree to this platform's terms of participation.

Senate Bill S3550

Sponsored By

Archive: Last Bill Status - In Senate Committee Corporations, Authorities And Commissions Committee

2015-S3550 (ACTIVE) - Details

2015-S3550 (ACTIVE) - Summary

2015-S3550 (ACTIVE) - Sponsor Memo

2015-S3550 (ACTIVE) - Bill Text download pdf

Comments

Senate Bill S3550

Share this bill

Sponsored By

Adriano Espaillat

Archive: Last Bill Status - In Senate Committee Corporations, Authorities And Commissions Committee

2015-S3550 (ACTIVE) - Details

2015-S3550 (ACTIVE) - Summary

2015-S3550 (ACTIVE) - Sponsor Memo

2015-S3550 (ACTIVE) - Bill Text download pdf

Comments