Facebook chief executive Mark Zuckerberg took to the social media network Thursday to respond to swift criticism over the plans he and his wife, Priscilla Chan, have to donate 99 percent of their shares in the company over the course of their lives.
Earlier this week, the couple revealed that they would give away their shares, currently estimated at $45 billion, as part of an announcement commemorating the birth of their first child.
To do so, the couple said, they created the Chan Zuckerberg Initiative -- a limited liability corporation set up to disperse those funds as the couple saw fit. In an open letter to their daughter, Max, the couple said that they would focus the initiative's efforts on issues such as "personalized learning, curing disease, connecting people and building strong communities."
Criticism came quickly, as many wondered why the couple didn't set up a nonprofit, similar to the Bill and Melinda Gates Foundation, or give the money directly to charities. Some wondered whether it was a tax dodge.
In Thursday's post, Zuckerberg refuted the idea that the couple was avoiding taxes and explained his reasoning:
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.
He said that, for the couple, the main appeal of the LLC organization was the flexibility it gives them to fund a variety of projects and initiatives.
"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," Zuckerberg said.
Nonprofits are bound by several laws and cannot, for example, involve themselves heavily in elections or spend a substantial amount of money on lobbying. LLCs face fewer limitations in that regard and also have less stringent transparency requirements.
"I think he got it right," said Jeffrey Tenenbaum, head of Venable law firm's nonprofit organizations practice. What the couple is doing "is absolutely not a tax dodge" for the reasons Zuckerberg explained in his post, he said. He would have advised them to make the same decision that they had made, coupled with being "very transparent with the activities, income and expenses of the LLC," he said.
Other Silicon Valley elite have turned to the LLC for their charitable initiatives, including eBay co-founder Pierre Omidyar and Laurene Powell Jobs, the widow of Apple co-founder Steve Jobs.