Mark Zuckerberg has defended the unusual company structure chosen for the eye-catching philanthropic venture launched to celebrate the birth of his daughter, Max.
He will give away 99% of his stake in Facebook, worth $45 billion, to fund the Chan Zuckerberg Initiative.
Rather than set up a simple charity, the Facebook founder formed a limited liability company (LLC) to administer the money.
An LLC brings certain tax exemptions but also allows investment for profit.
Critics have said the structure of the Chan Zuckerberg Initiative could provide a way for Mark Zuckerberg to avoid paying tax on the sale of his shares. They have also questioned why he did not set up a not-for-profit charity instead.
An LLC allows Mark Zuckerberg to keep hold of the voting and allocation of the shares he puts into it.
In a Facebook post on December 3, Mark Zuckerberg explained his reasons for creating an LLC instead of a not-for-profit organization and said he and his wife, Priscilla Chan, will pay capital gains taxes when their shares are sold by the company.
“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,” he said.
“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,” Mark Zuckerberg added.
The new charitable organization is aimed at “advancing human potential and promoting equality for all children in the next generation”.
Mark Zuckerberg and Priscilla Chan’s shares will be donated over the course of their lives. They have already committed $1.6 billion to philanthropic causes according to a Facebook statement.