Earlier this week, Facebook CEO Mark Zuckerberg and his wife Priscilla Chan made public that they had given birth to a baby girl–and to mark the occasion, they were starting a philanthropic organization dubbed the Chan Zuckerberg Initiative. The pair also pledged to give 99% of their Facebook shares–a whopping $45 billion–to carry out the company’s mission. A number of people wondered, however, why the initiative was structured as an LLC, rather than as a nonprofit, since an LLC can be used for profit.
In a Facebook post on Thursday, Zuckerberg clarified the decision, arguing that “using an LLC instead of a traditional foundation, we receive no tax benefit from transferring our shares to the Chan Zuckerberg Initiative, but we gain flexibility to execute our mission more effectively.” (The New York Times offers a good explainer here, which notes that Zuckerberg will have greater control over how he donates his money, be it contributions to “for-profit social enterprises” or “supporting political causes.”) He also pointed out that had they structured the company as a foundation, they would have in fact been granted a tax benefit.
Below is Zuckerberg’s post in full:
I want to thank you all for your heartwarming congratulations on Max’s birth and on starting the Chan Zuckerberg Initiative. This whole community has been so loving and supportive.
If you’re interested in following the philanthropy work we’re doing with the Chan Zuckerberg Initiative, I encourage you to like the page here:
Since we announced this a couple days ago, many people have asked about what we’re planning to focus on and how we’re structuring our work.
Our initial focus areas are personalized learning, curing disease, connecting people and building strong communities. We’ve already made many investments over the past five years in these areas — education, science, health, internet access and inclusion — and you can see a summary of our investments on the Chan Zuckerberg Initiative page timeline.
The Chan Zuckerberg Initiative is structured as an LLC rather than a traditional foundation. This enables us to pursue our mission by funding non-profit organizations, making private investments and participating in policy debates — in each case with the goal of generating a positive impact in areas of great need. Any net profits from investments will also be used to advance this mission.
By using an LLC instead of a traditional foundation, we receive no tax benefit from transferring our shares to the Chan Zuckerberg Initiative, but we gain flexibility to execute our mission more effectively. In fact, if we transferred our shares to a traditional foundation, then we would have received an immediate tax benefit, but by using an LLC we do not. And just like everyone else, we will pay capital gains taxes when our shares are sold by the LLC.
What’s most important to us is the flexibility to give to the organizations that will do the best work — regardless of how they’re structured. For example, our education work has been funded through a non-profit organization, Startup:Education, the recently announced Breakthrough Energy Coalition will make private investments in clean energy, and we also fund public government efforts, like the CDC Ebola response and San Francisco General Hospital.
We’ll have more to share soon, and if you want more information I recommend liking the Chan Zuckerberg Initiative page.
Thanks again for all of your support and interest. This community has been amazing and we’re excited to get started on this work together when we’re back from parental leave!