What Is a Philanthropic LLC?
An LLC is a business structure that some donors opt to use in their philanthropy. LLCs can be used for philanthropy instead of or as a complement to a donor-advised fund (DAF) or foundation. Unlike foundations or DAFs, LLCs allow philanthropists to move money for charitable, political and for-profit activities through a single entity.
Some of the biggest names in philanthropy — such as Mark Zuckerberg and Priscilla Chan, Laura and John Arnold, Laurene Powell Jobs, and Pierre Omidyar — have chosen to conduct their giving through LLCs.
Proponents of philanthropic LLCs appreciate the flexibility and the ability to impact issues they care about on multiple fronts, without payout requirements or the need to publicly disclose their tax records.
- Short for “limited liability corporation,” an LLC is a business structure.
- LLCs are increasingly used as a philanthropic vehicle by wealthy donors.
- LLCs are not tax-exempt, and funders don’t get a tax deduction for putting money into a philanthropic LLC.
- LLCs are flexible — they allow owners to make tax-deductible contributions to 501c3s as well as engaging in political giving and for-profit impact investing.
- There are no payout requirements on philanthropic LLCs.
- LLCs can offer donors more privacy around their giving.
How do philanthropic LLCs work?
Doing philanthropy through an LLC has some unique characteristics. Here are some important things to know about using an LLC for philanthropy:
Contributions to LLCs are not tax-deductible
Unlike with a foundation or DAF, the money a funder puts into a philanthropic LLC is not tax-deductible, and the LLC is not tax-exempt.
Grants or gifts from LLCs to 501c3s are tax-deductible
Through an LLC, donors can make grants or gifts to 501c3 nonprofits. These grants or gifts can be deducted as charitable contributions on the LLC owner’s personal tax returns.
There are no payout requirements for philanthropic LLCs
Unlike foundations, which have annual minimum payout requirements, there are no payout requirements for LLCs. Owners can choose how much they want to donate from an LLC – or if they want to make charitable contributions at all – each year.
Funders can conduct political giving through LLCs
A huge difference from foundation giving is that donors giving through LLCs can more freely engage in political giving—giving to 501c4s as well as directly funding lobbying, political campaigns and even individual candidates and ballot initiatives.
LLCs can be used for for-profit impact investing
LLCs can also invest in commercial ventures — for example, innovators in renewable energy — and then choose what to do with any profits. There is also more freedom for LLC investors to take risks with their impact investing, while foundations must ensure their investments don’t jeopardize the foundation’s ability to continue with its charitable mission. Because LLCs are not tax-exempt, any income from a philanthropic LLC’s investments will be taxed.
Gifts to individuals can be made from LLCs
Funders can also make non-tax-deductible gifts to individuals from an LLC.
LLCs provide flexibility for international philanthropy
Through an LLC, a funder can invest in foreign companies or make donations to charities in other countries.
Philanthropic LLCs do not have to disclose their tax returns the way foundations do
Owners of philanthropic LLCs can have more privacy or anonymity around their giving than grantmaking foundations do.
LLCs are “pass-through” entities
By using an LLC for philanthropy, owners get some protection against liability compared to simply writing checks out of their personal accounts. That said, they still report any profits — or tax-deductible contributions — from the LLC on their personal tax returns.
Why do donors choose LLCs for philanthropy?
There are several reasons a donor might choose a philanthropic LLC as the vehicle for their philanthropy. These include:
- Flexibility. Donors who choose an LLC for their philanthropic vehicle have the flexibility to give in multiple ways from a single entity. A philanthropic LLC lets a funder make tax-deductible contributions to 501c3 nonprofits as well as conduct non-tax-deductible political giving and engage in for-profit impact investing. This allows a donor to combine several kinds of giving under one umbrella. The flexibility offered by LLCs compared to foundations includes:
- No payout requirement. The flipside of not receiving a tax deduction for contributions to an LLC is that there is no payout requirement on philanthropic LLCs. This allows a donor to give as much or as little as they want in a given year.
- For-profit impact investing. Some donors choose a philanthropic LLC because they want to engage in for-profit impact investing as a way to make a difference while earning a profit
- Political giving. Through philanthropic LLCs, donors can engage in non-deductible forms of giving such as giving to support political campaigns.
- Control. Owners of philanthropic LLCs retain a lot of control. They don’t have to work with a foundation board. They can close the LLC or move assets out of it at any time.
- Privacy. Some donors choose to do their philanthropy through an LLC for the privacy. LLCs don’t have to make their tax returns public like foundations do. Another way donors can maintain privacy around their philanthropy is by giving through a DAF. Both of these structures have prompted questions about transparency and accountability in philanthropy.
Who uses philanthropic LLCs?
LLCs are an especially popular vehicle for philanthropy among tech billionaires and other tech philanthropists. Some high-net-wealth philanthropists give through multiple entities, such as a philanthropic LLC as well as a DAF or foundation.
Inside Philanthropy’s Michael Kavate has described a few different examples of how some funders use LLCs as part of a multi-pronged approach to philanthropy and financial structures.
Learn More About How Funders Give
A philanthropic LLC is just one type of financial vehicle for philanthropy. Other philanthropic vehicles include foundations and donor-advised funds.
Learn more about the different ways funders give at Inside Philanthropy’s Learn Center. Become a subscriber today.
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