Hybrid Companies: An amalgam of for-profit and charity
What is a hybrid company?
There's a relatively new type of company in our midst, an amalgam of for-profit and charity, known as a hybrid company. According to Fastcompany.com, "Hybrid companies are B corporations - benefit corporations — whose mandates are to serve the public well and also increase shareholder value. There are also L3Cs, low-profit limited liability corporations with a similar dual purpose."
The B Corporation
The legal structure of a B corporation expands its corporate accountability and enables it to scale and achieve liquidity while maintaining mission. B corporations' transparent and comprehensive performance standards enable consumers to support businesses that align with their values, investors to drive capital to higher impact investments, and governments and multinational corporations to implement sustainable procurement policies.
The Low-Profit, Limited
The L3C is a variation of a limited liability company (LLC) designed to attract private investments and philanthropic capital in ventures designed to provide a social benefit. Unlike a standard LLC, the L3C has a 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.
Straddling a Fine Line
A hybrid co. straddles a fine line between achieving its philanthropic mission and profitability. The New York Times reported, "Unlike a straight nonprofit group, these businesses can tap into conventional capital markets as well as philanthropy. And unlike a for-profit corp., the structure allows investors to emphasize the social mission over making money, and to be supported by money from foundations."
Michael Costa, CPA, is a founding partner at Armao, Costa & Ricciardi, CPAs, P.C., Garden City, N.Y.
Story ran in the Front Section section on 03/12/2013