Limited liability corporations (LLCs) empower individuals to take a multi-faceted approach to their philanthropy. A handful of prominent philanthropists—many of them from the tech industry—have popularized the LLC model to pursue a range of activities that help them achieve their social impact objectives. These activities can include:
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Grant making
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Advocacy and lobbying
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Impact investing
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Conventional commercial investing
What makes the LLC model an attractive option for philanthropists?
Savvy philanthropists appreciate the complexity of the charitable issues and the need to address them from every angle. An LLC structure provides not only flexibility but also greater integration of various social change efforts to expedite progress.
LLCs hybridize for-profit and charitable activities, allowing philanthropists to generate financial and social returns. Unlike private foundations, LLCs are not legally required to spend down 5 percent of their assets, nor are they obligated to report their investment activities publicly each year. Thus, this model allows philanthropists to pursue a variety of social change activities confidentially.
What are some potential downsides to the LLC model?
Since an LLC is considered a type of for-profit entity, capital channeled to this entity is not tax deductible.
Given the variety of activities that can be carried out via an LLC, these structures often require personnel. If you are looking for a leaner philanthropic vehicle, consider a donor-advised fund or even a private foundation, both of which offer tax deduction benefits.
How can I start an LLC?
The process of establishing LLCs is straightforward and relatively affordable (<$1,000). You will want to spend some time with your wealth and legal advisors to determine an operating strategy that will best execute your vision. Plotting your holistic approach to philanthropy—which could include everything from charitable grants and impact investing to lobbying and staffing plans—will likely be the most complex part of the process.
Additional Resources:
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A Giving Pledge couple opted to create an LLC after chairing their foundation for nearly 10 years. Learn about their reasons for doing so and whether their rationale resonates with your philanthropic intent.