An L3C can be formed as a new entity or by converting an existing one. The procedure to establish a new L3C is very similar to the one for forming an LLCs. Like a standard LLC, an L3C is established by filing articles of organization with the state and executing a formal operating agreement. The main difference is that an L3C's organizing documents need to define its purpose in accordance with the provisions of Regs. Sec. 53.4944-3(a): 

(1) an L3C must significantly further the accomplishment of one or more charitable purpose;
(2) the production of income and appreciation of property cannot be a significant purpose of the L3C; and
(3) an L3C cannot seek to accomplish any political or legislative purposes.

The provisions of Regs. Sec. 53.4944-3(a) can be incorporated in a sample L3C operating agreement with a statement such as:

(i) the Company shall be organized and operated primarily for religious, charitable, scientific, literary, or educational purposes [...] within the meaning of Section 170(c)(2)(B) of [the United States Internal Revenue Code of 1986 (the Code)]; (ii) no significant purpose of the Company shall be the production of income or the appreciation of property; and (iii) the Company shall not attempt to influence legislation, or participate or intervene in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office, all within the meaning of Section 170(c)(2)(D) of the Code.

In addition to Regs. Sec. 53.4944-3(a), there may be state-specific requirements governing L3C formation. For instance, in Vermont the label "L3C" must appear in the name of the organization and the articles of organization must conform to the standards for traditional LLCs. For more information, check our L3C state pages. 

If you choose to covert an existing entity to an L3C, it would be prudent to consider the tax implications. There should be no adverse federal tax consequences if you are converting a standard LLC to an L3C without shifting membership interests. However, converting a corporation or a non-profit organization to an L3C can be burdensome and costly, requiring legal counsel. If the existing entity is formed in a state which does not allow L3Cs, you would also have to consider the cost of relocating your venture.