Critics say Mark Zuckerberg isn’t quite ‘giving’ away his wealth

Mark Zuckerberg’s gift horse is facing scrutiny, with the Facebook chief executive drawing criticism for creating a company, not a foundation, for the 99% of his Facebook shares that he plans to “give” away during his lifetime.

Zuckerberg responded to the criticism in a Facebook post Thursday, saying donating to charities is great, but it’s not the only way to cure disease, educate the poor and generally improve the world.

Just before Thanksgiving, Zuckerberg and his wife, Priscilla Chan, established the Chan Zuckerberg Initiative, a Delaware-based LLC, or limited liability company, to channel cash to their pet causes.

A nonprofit would have given Zuckerberg a chance to save instantly on taxes when he shifted his wealth. But that benefit has strings attached. For instance, spending on political campaigns is limited, and he’d have to donate a certain portion of the nonprofit’s cash annually. He’d also face increased public scrutiny because nonprofits’ tax returns are public and charities’ activities are closely monitored.

Zuckerberg said in his Thursday post that he’s deferring tax savings to gain flexibility on spending. An LLC’s fewer restrictions mean his money can go to “the organizations that will do the best work -- regardless of how they’re structured,” he said.

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Besides nonprofits, an LLC lets him invest in for-profit companies, such as ones developing energy technologies -- an undertaking that a foundation is unlikely to take on.

The initiative also can lobby politicians and donate to election campaigns. And the LLC structure lets Zuckerberg shift cash back to his own pockets. He doesn’t have to report to a board of directors like he would with a nonprofit; in an LLC, he and any other owners are in control.

“Essentially, Zuckerberg can do everything with the LLC’s money that he can do with his own money,” James Kwak, associate professor at the University of Connecticut Law School wrote in a blog post Thursday.

Some commentators say the structure is smart. It follows what Ebay cofounder Pierre Omidyar and Apple cofounder Steve Jobs’ widow, Laurene Powell Jobs, have done with their wealth. But Kwak described the LLC approach as not so much a “giving pledge,” but a “keeping pledge.”

“I pledge to keep all of my wealth and use a lot of it to make the world better place, as long as I get to define ‘a lot’ and ‘better,’” Kwak wrote. He expressed concern that others would follow, refusing to irrevocably relinquish control of the wealth and instead maintain “complete control” to “spend it on their own pet projects and political issues.”

Other experts suggested that depending on how exactly the LLC is structured, the Zuckerberg-Chan family could save on income taxes by storing cash overseas or get a discount on estate taxes someday.

Zuckerberg said any profits generated by LLC investments would go back toward funding additional work.

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