The Limited Liability Corporation with a heart?

By Mathew Miller

“People tell you who they are, but we ignore it because we want them to be who we want them to be.”

-Don Draper

On December 1, Zuckerberg used the opportunity to publicly welcome his daughter to the world by posting a missive on his Facebook page. In it, he, along with his wife Priscilla Chan, announced their intention to form the Chan Zuckerberg Initiative (CZI), stating that the purpose of the newly formed entity is to “join people across the world to advance human potential and promote equality for all children in the next generation.” It plans to do this by “hoping” that their daughter’s generation will “focus on two ideas: advancing human potential and promoting equality”. The letter goes on to define what those two goals mean (the emphasis both above and below are his own):

“Advancing human potential is about pushing the boundaries on how great a human life can be … Pomoting equality is about making sure everyone has access to these opportunities – regardless of the nation, families or circumstances they are born into.”

He goes on to describe in some detail how he and Ms. Chan plan to move forward in order to accomplish these two things now because “these issues are too important to wait until you or we are older to begin this work.” It is concluded with a proclamation of love for his daughter and the somewhat pressure laden expectation that “[he and Priscilla] can’t wait to see what you bring to this world.” There is no doubt that advancing human potential and promoting equality, however you define them, are two areas in which humanity should strive to achieve. What is being questioned is the Facebook CEO’s true intentions.

A good number of people have grown up playing “the telephone game”, or at least understand the concept that the game elucidates: it does not take much for an original message to succumb to varying degrees of distortion as it travels from person to person. This knowledge, as with everything, can be used to create ostensible situations that benefit the original messenger. One can find many examples of this attenuated distortion occurring in election cycles, workplace politics, familial dynamics, and high school rumors, among other situations with varying degrees of importance and seriousness. Capitalizing on misinformation is what some people are accusing Mr. Zuckerberg of doing; they aren’t exactly wrong to do so.

What the Facebook founder failed to mention in regards to the Chan Zuckerberg Initiative are the three simple letters that follow: “LLC.” This alphabetic grouping is what describes how the enterprise will operate; the differences between a Limited Liability Corporation and a Charitable Foundation are substantial. The distinction was not lost on critics who claim that Zuckerberg’s public announcement was disingenuous at best.

Responding to the criticism Zuckerberg defended his position stating that, “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.” Below is a distilled comparison of the two legal entities that will allow the reader to draw his or her own conclusion.

LLC vs. Charitable Foundation:

• The LLC can lobby, while a charitable foundation (CF) cannot.

• The LLC can make political donations. A charitable foundation cannot.

• The LLC will allow Zuckerberg to maintain control of his Facebook shares. A charitable foundation would force him to relinquish control.

• The LLC does not have to disclose the compensation of its top five executives, whereas a charitable foundation is required to do just that annually through 990 filings.

The question, in the end, becomes one of Consequentialism. In other words, do the ends justify the means? If Zuckerberg’s intention was to create a tax sheltered entity that also gives him the freedom to invest in private businesses and influence politics, then does that mean his pledge to use his enormous wealth to affect change is blighted? Does it really matter if he is being disingenuous? After all, this is the person who called his early adopters “Dumb f***s” because “They ‘trust me’.”

Many may choose to reserve judgement until some actual results are proven. Others point to the above comments as well as his ultimately disastrous $100 million donation to the Newark school system in New Jersey. Mr. Zuckerberg claims to have learned his lesson from that debacle. Whether or not you believe his sincerity, or even care, one thing is for sure: in a business based mostly on advertising revenue, he has proven himself a capable ad man. Don Draper would be proud.

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About the author

Matthew Miller was Born in Kentucky, raised in Virginia. He attended Bridgewater College. He presently works in a job completely unrelated to his business & econ degree. Matthew loves writing for The Source.

View all articles by Matthew Miller

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