'L3C' Designation Doesn't Matter to Consumers

Abstract

There has been limited empirical research on the impact of legal issues on entrepreneurial ventures, despite the fact that this impact appears to be great. The low-profit limited liability company (L3C) is a new business entity form in the U.S. that allows for firms to support a social and/or environmental mission without maximizing shareholder wealth. According to Intersector Partners, L3C (2014), as of August 24, 2014, there are 1,072 total active L3Cs in nine states and one tribal entity. While L3Cs were initially designed to encourage more program-related investments from foundations, many ventures are forming this entity because it better fits with their core social and/or environmental mission.In this paper, we examine empirically whether the L3C designation can increase consumers' purchase intentions and perceptions of the designated business as one with primarily social or environmental impact. Our study used 330 participants, half of whom were identified as "green" consumers and half from the general population. Both groups were shown two descriptions of firms modified from real venture descriptions of existing L3Cs. One of these descriptions was given an LLC designation and one an L3C designation. One half of the participants were given a description of an L3C prior to being shown the L3C venture. Participants were asked to evaluate their likelihood to purchase from these two businesses and the perception that these firms supported social and/or environmental causes.Our findings showed no significant difference between either the entity, company, or when a L3C description was given in either purchase intention or perception of business. Both dependent variables were significantly different for green consumers versus the general population and between genders. This finding suggests that the L3C currently has only limited usefulness as a signal of attractiveness to consumers, but greater education by states and ventures may increase this potential over time.

Renewed hope for the low-profit limited liability company

“…Moreover, what little that has been written about L3Cs has been largely critical of the form. (Blair et al, 2015;Dana and Prosser, 2016;Pearce and Hopkins, 2014). The same can be said of L3C discourse in news outlets, trade journals, business publications and law firm bulletins.…”