The social enterprise designation is often used by entrepreneurs as a way to define either non-profit or for-profit corporations that are intent upon achieving a “multiple bottom line.” The social entrepreneur either adds social good to the for-profit model, or develops income streams outside of grants or donations to the non-profit corporation. Thus, a social enterprise requires an earned income stream (such as stall fees or merchandise sales) that is then invested in the common good, such as advocating for farmers or building local economic activity.

The social enterprise business model has led to a push for a new for-profit designation: L3C, which stands for “low-profit limited liability companies” and exists as an amendment to the general limited liability corporation at the state level. The main difference between an L3C and a conventional LLC is that the social good is a higher motive than profit. In other words, generating funds to invest in educational or social programs is an L3C’s primary activity, and profit is secondary.
The L3C designation has been passed in 10 states, in which more than 500 entrepreneurs have registered as L3Cs. According to InterSector Partners (a consulting company that has specialized in L3C work), the main funding reason to seek L3C designation is to be able to participate in “program-related investments” (PRI) with foundations. When a foundation makes a PRI investment, there is the potential for the initial capital to be returned to the foundation to then make other investments. Foundations are required to give away 5% of their assets annually and to accomplish that, most have traditionally chosen the grant-making process. However, within the food system there are also many for-profit partners (such as farmers!) who might also benefit from an investment from a foundation. The L3C status would allow foundations to make investments to those partners operating a for-profit business. Most importantly, this type of investment still counts within the 5% mandate.

Thus, the L3C designation allows foundations to make loans or short-termed investments in helping a market build a secondary earned income stream, for example. This could be research or starting capital to generate income from activities such as marketing T-shirts, cookbooks or aprons, consulting services, or other mission-aligned activity. That income can then be used to cover the market’s general operating expenses that would be difficult to cover with grants.
The Philanthropic Facilitation Act of 2011 (HR 3420), introduced  by Congressmen Jared Polis (D-Colorado) and Aaron Schock (R-Illinois), seeks to improve the ability of private foundations to make PRIs and would most likely encourage the growth of the L3C designation.