If you seek maximum flexibility in your philanthropy, consider bypassing the tax-exempt route and forming a for-profit limited-liability company (LLC). The benefits of LLCs in charitable work are numerous: wider latitude and diversity of spending opportunities, less regulation and red tape, and augmented privacy and control.
Facebook Founder Mark Zuckerberg and his wife, Priscilla Chan, chose this vehicle in 2015. Declaring their intention to donate 99 percent of their Facebook shares to charitable causes in their lifetimes (an estimated $45 billion pledge when it was made), they formed an LLC (the Chan Zuckerberg Initiative) to accompany the existing Chan Zuckerberg Foundation (a private non-operating foundation) and the sizeable donor-advised fund which the couple has funded at the Silicon Valley Community Foundation. Philanthropic LLCs are popular with other Silicon Valley powerbrokers as well, including Pierre Omidyar, Steven Ballmer, and Laurene Powell Jobs (widow of Apple founder Steve Jobs).
In early 2019, John and Laura Arnold announced they were restructuring their philanthropy as an LLC, Arnold Ventures, which overarches the private Laura and John Arnold Foundation as well as the Arnolds’ donor-advised fund and 501c4 Action Now Initiative. This example provides several guideposts you may use as a donor to establish your own philanthropic LLC:
• Use an LLC to make high-impact, high-risk investments in early-stage projects: Consider supporting causes that don’t have widespread buy-in yet.
• Use an LLC for maximum flexibility: LLCs are not subject to annual distribution requirements; they give donors the latitude to invest in domestic and foreign for-profit ventures; they can be used to fund ballot initiatives, direct lobbying, political campaigns, and individual candidates; and they can be used to support foreign charities without the requirement imposed on private foundations to determine that prospective foreign grantees are the equivalents of Section 501c3 public charities.
• Use an LLC for maximum privacy: In contrast to a private foundation’s tax return, LLC filings do not have to be public. What’s more, LLCs are not subject to the “self-dealing” rules applied to private foundations, so donors can structure their operations and compensation plans in ways that integrate their philanthropy with their business.
• Use an LLC to protect your donor intent: Because LLCs are designed and governed by their donors, they can typically avoid the common threats to donor intent. Their managers are employees, not the independent directors of a foundation. Also, LLCs can be terminated and their assets transferred any time their donors wish. They are ideal vehicles for donors committed to spending down their financial resources in their lifetimes.
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Should you choose a philanthropic LLC for your charity?