Mark Zuckerberg defends use of LLC for Facebook shares after critics accuse him of ducking taxes
Facebook Mark Zuckerberg gestures during a presentation in New Delhi on Oct. 9, 2014. (Photo by Chandan Khanna for Agence France-Presse)

Initiative through which couple will give away Facebook shares is structured to enable flexible use of funds, says founder

Mark Zuckerberg has defended the structure for his new philanthropic organization after critics suggested he was avoid paying tax on the sale of his shares.

Zuckerberg and his wife Priscilla Chan launched the organisation, the Chan Zuckerberg Initiative, this week to honor the birth of their daughter, Max. The couple pledged to give away 99 percent of their Facebook shares in their lifetime, currently worth about $45 billion (£30 billion).

However, the philanthropy is structured not as a charity but as a limited liability corporation (LLC) with charitable aims. According to the Chan Zuckerberg Initiative’s Facebook page, the LLC seeks to “advance human potential and promote equality."

An LLC brings Zuckerberg certain tax exemptions. Critics have said the company structure could allow Zuckerberg to avoid paying tax on his sale of the shares. By donating stock, Zuckerberg gets a charitable contribution deduction based on the fair market value of the shares, according to Forbes.

In a post penned on Facebook on Thursday, Zuckerberg said he and Chan would receive no tax benefit from transferring shares to the Chan Zuckerberg Initiative. The share transfer instead yields “flexibility to execute our mission more effectively,” Zuckerberg wrote.

“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,” he wrote. “And just like everyone else, we will pay capital gains taxes when our shares are sold by the LLC.”

According to Zuckerberg, the organisation is structured as an LLC rather than a traditional foundation so that it can make charitable investments.

“This enables us to pursue our mission by funding non-profit organizations, making private investments and participating in policy debates – in each case with the goal of generating a positive impact in areas of great need,” he wrote. “Any net profits from investments will also be used to advance this mission.”