Facebook's CEO starts an LLC to donate

The pledge by Facebook CEO Mark Zuckerberg and his wife Dr. Priscilla Chan to give away most of their wealth — some $45 billion — to promote social good is getting headlines around the world. But beyond the eye-popping number (which will be given over time) is an important detail that could have major implications for the future of giving.

Zuckerberg and Chan are doing this in a way quite different from other billionaires, such as Bill and Melinda Gates, who launched a foundation, or Warren Buffett, who gave a pile of money to the Gates Foundation. The new Chan Zuckerberg Initiative is not a foundation. It’s an LLC. This may sound like a mere legal and accounting distinction, but to those who follow the charitable world, it is hugely important and could be very influential.

“What we’re seeing here could be the end of philanthropy as we have known it,” said Leslie Lenkowsky, professor of public affairs and philanthropy at Indiana University. “This is going to be by far the biggest effort of the sort to really think of philanthropy more as a business than simply giving away money.”

Lenkowsky describes himself as “a big champion” of this kind of thinking, but adds that many others in the philanthropic world aren’t so sure.

An LLC is a business. It can give money to nonprofits, but it’s not legally required to. And it can do a lot more because it doesn’t face tax restrictions nonprofits do. That can include investing in for-profit companies. The Chan Zuckerberg Initiative says it will to do just that with companies that fit the mission of “advancing human potential and promoting equality.” It says any profits will be reinvested in projects that align with that mission. Creating an LLC gives them more flexibility on how they can put their money to work. 

Zuckerberg and Chan also plan to jump into public policy debates. That gets to another difference: LLCs can lobby.

“People have been looking at [the LLC] as an interesting tool that has not yet quite found its home,” said Norah Jones, who advises clients on charitable giving as a partner at Quarles & Brady. “Maybe this is the start of that next chapter.”

There’s excitement about the potential for this move to shake up philanthropy in positive ways. But there are also concerns about transparency. Nonprofits face various requirements to report their activities and finances. LLCs do not. Lenkowsky would like to see the Chan Zuckerberg Initiative report publicly on the impact of its giving and its finances, even though it doesn’t legally have to.

The philanthropic world is trying to be more entrepreneurial. But apparently a traditional nonprofit structure is not entrepreneurial enough for one of the world’s most famous entrepreneurs.