The use of a limited liability company (LLC) by Mark Zuckerberg and his wife Priscilla Chan as the vehicle for advancing of “philanthropic, public advocacy, and other activities for the public good” has recently received a great deal of press. Because Mr. Zuckerberg is famous, and made a public announcement of their intention to give 99 percent of their Facebook shares to their LLC, his use of an LLC garnered a great deal of attention. However, the use of LLCs as the vehicles for using funds to advance such goals is not new. Other uses of LLCs to engage in philanthropic/charitable/public-good activities by high-profile individuals include the creation of Emerson Collective, an LLC created by Laurene Powell Jobs, the widow of the late Steve Jobs, and the LLC formed as a part of the Omidyar Network by eBay founder Pierre Omidyar and his wife Pam Omidyar.

Benefits cited for the use of an LLC rather than the more traditional private foundation include that the LLC is not subject to disclosure rules, limitations on types of investments, and other rules described below. Many view LLCs as offering donors more flexibility in structuring their donating activities—especially given that many view the lines between the profit and nonprofit sector as being blurred, and believe that investments in the for-profit sector can achieve public good. For example, Ms. Jobs reportedly has stated that her organization did not need the tax structure of a foundation, and that her team valued anonymity and flexibility. The Omidyar Network's website prominently notes that ''it is structured to support the notion that philanthropy is more than one type of funding.... Consequently, we work across the social and business sectors, operating both a Limited Liability Company (LLC) and a 501(c)(3) foundation.''

When deciding what type of entity to form, an LLC should certainly be considered by donors among the other options. It may not be the entity that will be the right one to use given the specific goals, but it should always be considered. Key differences between the use of LLCs and the more traditional private foundations by individual donors include:

• Limited liability. An LLC offers limited liability protection to its owners. While a corporation that is a private foundation does not have ''owners,'' the corporation will generally similarly offer limited liability to donors, and other persons that may control the corporation.
• Deduction upon contribution/donation. If a person donates capital assets (such as securities held for investment) held for more than one year to a private foundation, the donor is allowed to deduct an amount equal to the fair market value of the property donated.[1] By contrast, a person who contributes property to an LLC receives no current tax deduction. However, when the LLC subsequently contributes such property to a public charity or private foundation, there likely will be an associated deduction that will flow through to the LLC's owners. Thus, while Mr. Zuckerberg may have been entitled to a current deduction equal to the value of his appreciated Facebook shares if he'd donated them to a private foundation (assuming he donated an amount small enough per year to meet the limits on deductions), by contributing those shares to an LLC, he will not be entitled to a charitable deduction until such time as his LLC makes donations to qualifying charitable entities.
• Income taxes payable by the entity. An LLC does not pay any federal income taxes, as it is a flow-through entity.^[2] If the LLC has income, then the entity itself will not pay income taxes on such income; instead the income will be required to be taken into account by the owner(s) of the LLC, and such owner(s) will be required to pay any income taxes with respect to such income.
  A private foundation is generally exempt from federal income tax. However, any income it earns from trade or business regularly carried on that is unrelated to its charitable purpose is subject to tax at the general corporate income tax rate. In addition, almost all private foundations are subject to an annual 2 percent tax on net investment income (including interest, dividends, rents, royalties, and capital gains). Private foundations are also subject to other excise taxes that are intended to insure that the activities of the private foundation are directed toward charitable activities.
• Lobbying activities. All private foundations are prohibited from funding or engaging in any ''attempt to influence legislation.'' There is no similar limitation on LLCs owned by individuals.
• Mandatory payout/5 percent rule. Each year, a private foundation is generally required to make eligible charitable expenditures equal to at least 5 percent of the value of its assets. There is no such requirement for an LLC.
• Investment Choices. Private foundations are subject to limits on holdings in for-profit businesses. Further, investments must not jeopardize the private foundations’ ability to conduct its exempt purpose. There are no similar restrictions on an LLC's investments. The LLC has great flexibility as to what sorts of activities to undertake; it may invest in other LLCs or partnerships, enter joint ventures with for-profit partners, and engage directly in profitable activities. Of course, to the extent an LLC makes a profit, the related taxable income will flow through to the owners of the LLC.
• Disclosure to Public. A private foundation must make available for public inspection a copy of its three most recently filed annual returns (IRS Form 990-PF), as well as its Application for Recognition of Exemption (IRS Form 1023).  Thus, as a practical matter, all information disclosed on a private foundation's application for exemption and its annual tax returns is available to the public.  There are no similar requirements for LLCs. We note that in the case of Mr. Zuckerberg, because the stock of Facebook, Inc., is publicly traded, and Mr. Zuckerberg is a significant owner, an 8-K was filed describing his announcement that during his lifetime, he will gift or otherwise direct substantially all of his shares of Facebook stock, or the net after-tax proceeds from sales of such shares, to his LLC. However, this type of disclosure would not be required in most other situations. Further, we note that the information disclosed was quite high-level.
• Self-dealing. Private foundations may not engage in certain transactions with substantial contributors, officers, trustees or other insiders. There are no similar prohibitions in the case of an LLC.
• Certain Stock Holdings. An excise tax is imposed on a private foundation’s stock holdings in excess of 20 percent of the voting stock of any one corporation. There is no such similar limit on LLCs. While not an issue for most donors, this may have been a factor in Mr. Zuckerberg’s decision.

While not discussed in detail here, we note two other points. First, LLCs should be considered as alternatives to traditional public charities that qualify as 501(c)(3) organizations, social welfare organizations under Section 501(c)(4), and business leagues under Section 501(c)(6). In cases where a current deduction is not important to the donors or members, where the LLC does not expect to generate considerable income, or the donors want great flexibility as to how the donated funds should be used, further invested or donated, the LLC may make great sense. In addition, we note that in certain situations (for example, where the donor has expiring unused charitable deduction carryovers or other expiring loss), the LLC may be used in tandem with the private foundation to hold the donated property until contributed to the private foundation.

In sum, where a donor's objective is to create an organization that will have or develop a separate identify from the donor, will engage in a range of activities not permitted to be engaged in by private foundations, and where the current tax deduction of contributions to the organization is not a primary goal of the donor, the use of an LLC should be considered. Please contact one of the authors if you have any questions or would like to discuss further.