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Oct. 26, 2009, 9:02 a.m.

Chicago’s L3C newsroom

For those keeping track of such things, take note: Journalism is about to get its first low-profit, limited liability corporation company, or L3C.

The new Chicago News Cooperative, unveiled on Thursday by former Chicago Tribune managing editor Jim O’Shea, will begin life as a nonprofit, but will change over to an L3C after Jan. 1, when a new Illinois law takes effect, according to a Tribune report.

The L3C is a hybrid corporation that straddles the line between for-profit and nonprofit enterprise. Vermont last year was the first state to pass a law allowing formation of L3Cs, and Illinois this month became the most recent. Several other states are considering similar legislation, as is Congress.

The Chicago News Cooperative doesn’t appear to have investors yet. But it does have a major donor in the John D. and Catherine T. MacArthur Foundation. And it has a paying customer in the New York Times, which is planning a beefed-up Chicago-area edition, much like the Bay Area edition it announced earlier this month. There, the Times will partner with Warren Hellman’s nonprofit Bay Area News Project.

Speculation and interest in the L3C model in journalism has run high. Some have looked to the L3C model as a solution for newspapers because it allows a corporation to take on investors who are willing to accept varying rates of return — or possibly none at all. Foundations would be assured that their investment would qualify as a program-related investment — a crucial distinction under tax law — while socially responsible investors might be willing to settle for, say, a 3 percent return.

While CNC will partner with a newspaper, it remains unclear whether the model can be applied successfully to newspapers themselves. Jay Hamilton, director of the DeWitt Center at Duke University says newspapers may be reluctant to switch because of the legal uncertainties involved. Others who have written about the potential for L3Cs include Poynter columnist Bill Mitchell. Perhaps the most attractive aspect of the L3C is that it automatically designates the company’s activity as a “program-related investment.” Those are magic words for a foundation, which must prove to the IRS that its grant furthers its mission and also benefits society.

While L3Cs are relatively new in the United States, they’re old hat in the United Kingdom, where they’re called community interest companies. Although Vermont remains the only state to authorize the L3C, L3Cs formed in Vermont can operate in any state or territory.

UPDATE, Wednesday, 7:48 a.m.: Many thanks to Sally Duros, who has written extensively about L3Cs, for spotting our mistake in the first graf: It’s a low-profit, limited-liability company.

POSTED     Oct. 26, 2009, 9:02 a.m.
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