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Why Mark Zuckerberg's huge new donation is going to an LLC rather than a charity

Mark Zuckerberg and some guy.
Mark Zuckerberg and some guy.
Steve Jennings/Getty Images

Mark Zuckerberg and his wife Priscilla Chan's announcement of plans to give away 99 percent of their Facebook stock comes with an unusual twist. According to paperwork filed with the SEC by Facebook, the money will go to a new limited liability corporation (LLC) rather than to a charitable foundation or other traditional nonprofit structure.

That has naturally raised a lot of eyebrows from people looking to expose the whole thing as a scam, but that's almost certainly not what's going on. When Steve Jobs's widow, Laurene Powell, created a charitable LLC back in 2013, Laura Arrillaga-Andreessen told the New York Times the reason was that Powell wanted to be able to spend some of the money on political lobbying and investing in for-profit businesses, both things that a charitable foundation can't do:

"The beauty of having an LLC in today’s world is No. 1, you have the ability to act and react as nimbly as need be to create change, and you have the ability to invest politically, in the for-profit sector and the nonprofit sector simultaneously," she said.

"And the reality is," she added, "we are now seeing a blurring of the lines between the sectors in a way that was not even discussed 10 years ago. The way that we are going to solve social problems is by working with multiple different types of investing."

An LLC, for example, can spend money on political ads. A tax-exempt nonprofit can't. And an LLC could make angel investments in clean energy startups in a way that a tax-exempt nonprofit can't. But an LLC also can make donations to tax-exempt nonprofits, and thus reap the tax benefits of charitable giving.

One reason very wealthy philanthropists have traditionally set up charitable trusts is that they've been motivated in part by the desire to create enduring institutions that long outlive them. Things like the Ford Foundation, the Rockefeller Foundation, and the Carnegie Foundation are still alive and well generations after their creation. The recent trend, however, has been toward trying to spend all the money within a finite span of time rather than creating an infinitely lived grantmaking institution. Under those circumstances, the LLC structure has a lot of advantages, and it's not surprising to see Silicon Valley donors starting to opt for it.

Of course, one reason a traditional nonprofit can't invest in for-profit businesses is that when you invest in for-profit businesses that succeed, you end up earning a profit. Zuckerberg says the Chan Zuckerberg Initiative will simply reinvest any profits the LLC earns back into the larger enterprise. If he goes back on his word about that, then of course it will turn out that he didn't establish a nonprofit at all — he established an angel investing fund. It's not quite a legally binding divestment of funds in the same way a traditional charitable donation would be. But if Zuckerberg were harboring a secret desire to give away less than 99 percent of his Facebook wealth, he could easily have just made a pledge to give away 50 percent of it. That would still have been a lot of money and a big deal.

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