Priscilla Chan and Mark Zuckerberg’s decision to form an LLC, through which they’ll conduct charitable and philanthropic activities, made headlines earlier this week.
The New York Times notes that other Silicon Valley billionaires have taken to using LLCs, and speculates that the Chan/Zuckerberg adoption of the vehicle may accelerate the trend, distinguishing a newer generation of Silicon Valley tech billionaires from Bill and Melinda Gates.
“LLC” denotes “limited liability company,” a form of legal entity, chartered under state law, that may be said to combine aspects of a corporation with features of a partnership.
But here’s a small insight, a fine point I’m not seeing in press reports about the Chan and Zuckerberg announcement: Billionaires have been using LLCs for years.
Take real estate investments: LLCs are common vehicles in which to hold real property assets. In fact, it would be more typical than not, in your average billionaire’s portfolio of islands, manors, ranches, and commercial properties, to find LLCs within LLCs, for a variety of tax, liability mitigation and other reasons.
Many in the startup community already know about LLCs. Forming your Newco as an LLC was a bit of a fad, for a time; the thought was, they are simpler and easier to set up (not true, actually), and can always be converted into a corporation (actually often trickier to pull off than you’d think) when initial investors arrive.
Are LLCs particularly good at charitable contributions? Well, yes, if, as the one controlling the LLC, you want the discretion on whether, when, and how much to donate. In that regard, LLCs might work just like keeping the money in your pocket until you want to take it out.
Chan and Zuckerberg’s plan to give away their wealth is laudable and remarkable. But the setting up of an LLC, in and of itself, does little to set that plan in motion. In that regard, I think the title of the New York Times piece this week gets it right: “Mark Zuckerberg’s Philanthropy Uses L.L.C for More Control.”
