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Mark Zuckerberg defends his $45B charitable impulse

Critics have expressed concern about how the Facebook CEO's new organization will be set up and where the donations will go.

Mark Zuckerberg has had to explain how his new charitable initiative will be set up.
James Martin/CNET

Grand gestures don't always go over the way you hope they will.

The CEO of the world's largest social network has promised to donate potentially billions of dollars to worthy causes and companies. It didn't take long, however, before he felt compelled to defend his decision on how to set up his new philanthropic endeavor.

On Tuesday, Facebook's Mark Zuckerberg and his wife, Priscilla Chan, said they plan to establish the Chan Zuckerberg Initiative, which will receive 99 percent of the CEO's Facebook shares, currently worth about $45 billion. In a rather unconventional move, the organization that will distribute the blocks of stock as donations will be established as a limited liability company (LLC) instead of a traditional nonprofit foundation.

That decision has some people questioning his motives, as noted in the headline of a commentary in The New York Times: "How Mark Zuckerberg's Altruism Helps Himself."

Zuckerberg is one of a number of tech moguls who have pledged hefty portions of their wealth for charitable purposes. Billionaires such as Google co-founders Larry Page and Sergey Brin and Microsoft co-founder Bill Gates typically have set up their charitable endeavors as traditional nonprofits. Some have started using LLCs instead, but such a move can raise red flags.

Unlike a nonprofit organization, an LLC more closely resembles a corporation in that it can generate profits and offer certain tax benefits. It also would impose fewer restrictions and obligations on how Zuckerberg and Chan could distribute money than if they were to set up a regular nonprofit foundation. They could donate to political organizations and for-profit entities as well as charities. Some critics also claim an LLC would allow the couple to avoid paying taxes.

In a Facebook post published Thursday, Zuckerberg explained how the tax structure would work for the new initiative, which he said plans initially to focus on "personalized learning, curing disease, connecting people and building strong communities":

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

Zuckerberg also emphasized the ability to donate to groups and causes no matter how they're structured.

In September, Zuckerberg and his wife donated $5 million through their Zuckerberg Education Ventures LLC to MasteryConnect, an education tracking company, according to The New York Times. A new initiative called Breakthrough Energy Coalition founded by Zuckerberg, Gates and other tech honchos will make private investments in clean energy. Zuckerberg also said that his LLC will provide funds to efforts such as the Centers for Disease Control and Prevention's Ebola response and San Francisco General Hospital.

Facebook did not immediately respond to CNET's request for comment.