Why Mark Zuckerberg's multi-billion charity isn't really a charity

Many of you, by now, must have heard of Zuckerberg and Priscilla Chan's plan to donate 99 per cent of their shares (estimated $45 billion) in Facebook over their lifetime to causes "to improve the lives of all those coming into this world." But there is more to the couple's philanthropic initiative than what meets the eye. Let us dissect things point-by-point to understand why it's not the charity it appears to be and why is it being looked at with suspicion.

1. Instead of a charitable foundation, the Chan Zuckerberg Initiative, which the couple has pledged to give away its Facebook fortune to, is a Limited Liability Corporation (LLC). While philanthropists usually set up non-profit organisations to make charitable donations, the young billionaires have set up an LLC, which is defined as a structure that somewhat acts like a corporation. And therefore, it gives Zuckerberg and Chan more control.

In other words, the LLC structure provides the couple with the flexibility to invest in for-profit social enterprises, make private investments, and support political causes, thereby giving them a freer hand.

2. An LLC, when compared to a traditional foundation, has fewer rules to adher to. An LLC "does not necessitate the same kinds of disclosures of public tax documents, and the couple can choose to disburse any profit from the LLC, however they wish. In all those ways, the LLC acts more like a private investment vehicle for the couple," explains a New York Times report.

Also, as a traditional foundation, under the federal tax code, is required to spend 5 per cent of their net assets every year for charitable purposes, while an LLC is free from this.

3. Apart from control, there are some tax as well as legal benefits to have an LLC structure. If at any point of time, the LLC set up by Zuckerberg and Chan is sued, their personal assets will be exempted from considerations. As the money is going directly to the couple's own LLC and not to any charitable foundation, it gives them a platform to evade taxes by moving their private assets into a foundation.

While Zuckerberg, in a post, explains, "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."

But Zuckerberg "has been very vague about the structure of his philanthropic venture," said Arthur Gautier, who heads philanthropy research at the Essec Business School in France.

Four years ago, Zuckerberg had donated $100 million to reform the chronically ailing Newark, New Jersey, school system, a gift he hoped would turn that city's schools into an example of educational excellence nationwide. But it ended up moving thousands of students to new schools while laying off teachers and support staff, and critics said the effort failed to involve the community. According to analysts, his efforts in Newark had been misdirected, with much of the money went into programs that had minimal long-term benefit.

Given the past record, Zuckerberg's charity plans has its share of critics.

"There's always a risk, but hopefully Zuckerberg will properly evaluate the impact of his grant making process to make sure that he's not doing more harm than good," said Sandra Miniutti of Charity Navigator, which advises donors on charitable giving.

"One of the biggest challenges for the big donors is to make sure that their money benefits those who need it the most," said Pablo Eisenberg at the Center for Public and Nonprofit Leadership at Georgetown University.

Eisenberg said some philanthropists "give money to large and well established institutions and not to the neediest people and the marginalised population."

Other major philanthropy initiatives have been created by Microsoft founder Bill Gates with the Bill and Melinda Gates Foundation and the Buffett Foundation by the billionaire investor Warren Buffett, both of which fund a variety of projects.

The Gates Foundation has been both praised and criticised for its efforts in fighting poverty and eradicating certain diseases. In Brazil, the charitable group has sued oil giant Petrobras, in which it holds a stake, over allegations of bribery and corruption.