Wow … talk about a demanding audience! One moment, Facebook’s co-founder and chief executive Mark Zuckerberg announces that he is giving $45 billion of corporate stock to charity. And the next moment, members of the media criticize him for self-serving behavior!
That’s a harsh response to a $45 billion donation, isn’t it? But do the media critics have a point? Why are they so concerned?
Apparently, instead of creating a traditional nonprofit foundation in the style of the Bill & Melinda Gates Foundation, Zuckerberg and his wife Priscilla Chan decided to transfer the stock to a Limited Liability Corporation (LLC). That’s what drew the ire of their critics.
So what’s the difference? Well, a nonprofit foundation must adhere to certain rules of conduct in order to earn its income tax exemption. For instance, it must disclose many activities to the federal government and the general public. And it must refrain from making many investments in profit-making ventures.
LLCs, on the other hand, are simple corporate entities that are not required to disclose their activities to any one. They are free to invest their funds in any legal operation. And although they do not receive income tax exemptions per se, they usually do not pay income taxes at all because they pass any taxable earnings or losses through to their owners.
So what makes an LLC a charitable endeavor? Nothing, really, other than the intention of its owners to utilize it for the public good.
And that’s why some people are criticizing Priscilla Chan and Mark Zuckerberg. Had they placed the $45 billion in stock in a nonprofit foundation, they would have accepted the need to comply with legal rules of conduct that ensure the expenditure of the funds for charitable purposes.
But by placing the stock in an LLC instead, they avoid any legal requirement to expend the funds for the public good. In fact, the only constraint that compels them to do so is their own conscience.
So perhaps it would be fair to neither praise nor criticize their announcement at the present time. Instead, perhaps it would make sense to wait and see how they actually expend the LLC’s funds before drawing any conclusions about their intentions.