Question

1. Every state allows an entrepreneur to form an L3C in that state (ie., each state gives the option to establish an L3C just like it gives the option to establish an LLC in that state). True or False?

2. Because an L3C formed in Vermont is a for-profit entity(i.e., it is not subject to the redistribution constraint), the L3C does not have to worry about furthering a charitable or exempt purpose. True or False?

3. An L3C is very likely have a tax-exempt organization as its single owner(i.e., the entity would be characterized as a single-member L3C). True or False?

4. Under the default tax rules, an L3C must pay tax on its income. True or False?

Answer 1

1. True. Although L3Cs can operate in all 50 states, incorporation is currently allowed in certain states only and the decision to form an L3C is state specific

2. Fales. The primary objective of L3C formation is furthering a charitable or exempt purpose.

3. False. The L3C is taxed like any other for-profit entity and is not eligible for tax exemption under Section 501(c)(3) of the Internal Revenue Code.

4. True. The L3C is taxed like any other for-profit entity and is not eligible for tax exemption under Section 501(c)(3) of the Internal Revenue Code.