27 Apr Facebook’s Charity Foregoes Traditional Nonprofit for an LLC
California Document Preparers is working with a lot of business owners these days who are upgrading their business entities. Their Sole Proprietorships served them well for the first few years, but as they’ve grown and hired a team, leasing office space in some cases, they’ve become very aware that they need a more robust business structure. Many are choosing LLCs—they offer the tax and liability advantages of a corporation, but provide more flexibility and less paperwork.
Getting it right when you have $46B to give away
When Facebook’s Mark Zuckerberg and his wife, Priscilla Chan, decided to donate 99% of their fortune to charity, they didn’t create the usual foundation with its significant tax advantages; instead, they created an LLC. This is a highly unusual way to structure a charitable gift of an estimated $46B. Yet, as you read below, it becomes clear why they chose an LLC rather than a more traditional foundation—it would have been far too limiting!
- No limits on lobbying. The Chan Zuckerberg Initiative will put money to work in politics. Zuckerberg wants to be involved in helping to create policy and shape debates—if they’d set the foundation up as a 501(c)(3), they would have been excluded from any kind of political activity.
- The Chan Zuckerberg Initiative can actually turn a profit. While profitability doesn’t appear to be the aim of the new LLC, if part of the Facebook fortune ends up invested in something that makes money, it won’t run the risk of breaking IRS rules governing tax-exempt entities. Additionally, any money that is made will be used to further the mission—whatever that may be.
- It will be easier to do joint ventures. Let’s face it—Zuckerberg is a pretty connected guy, and he’s in an excellent position to build businesses alliances with other organizations. Traditional charities can be difficult partners for the private sector because there are restrictions on how a private foundation can do a joint venture with a for-profit company. By becoming a corporation, they are removing any potential barriers to forming relationships that could be beneficial.
- Avoiding the 5 percent rule. By using a corporate structure, Zuckerberg is avoiding a rule about having to give away 5% of a nonprofit foundation’s value every year. The Chan Zuckerberg Initiative can spend at the pace that makes most sense for the problem they’re trying to solve or the strategy they’re pursuing at the time.
Are you considering upgrading your business entity to a corporation? Stop in at one of our Bay Area offices to get started. We’re here to assist you.