My Linkedin feed is packed with celebratory posts about the move by Patagonia's founder to “give away” his company. But few of those posts tell the full story.
As any elderly entrepreneur, Yvon Chouinard was faced with a succession problem: how can I look after my company, my family, and other stakeholders once I will be too old to be operative, or worse, dead?
Some options considered were passing the company onto his children, selling it, or going public.
None of those appealed to him, so he went for an unusual solution (actually becoming more and more common among the wealthy): gifting the company to a non-profit organisation.
Yvon Chouinard transferred 98% of Patagonia shares to Holdfast Collective, a non-profit that will invest its roughly $100 million in annual profits “to fighting the environmental crisis and defending nature.”
The remaining 2%, which holds voting rights, is transferred to a family entity called Patagonia Purpose Trust.
The noble purpose of such a transaction is undeniable. Holdfast Collective will in fact help fight the environmental crisis. After all, Patagonia itself was a pioneer in sustainability and has always contributed to environmental causes, donating 1% of it profits every year.
However, there's more to it. Let's look at the other options:
Capital gain taxes don't apply to "give-aways". If Yvon Chouinard had normally sold the company for its market value ($3bln), the tax bill could have been over $700mln. A transfer to his children would have also resulted in a massive 40% gift tax levy. Going public? Yes, but he and his family would have lost control over the company.
As Bloomberg puts it, the bottom line is that Yvon Chouinard managed to avoid huge tax bills while also retaining control over the company, for him and his children.
I guess we're lucky that he also thought of the environment. And I want to believe this was the main driver behind this unusual transaction. Am I am naive? I hope not.
Of course, this doesn't apply to other billionaires. For instance, electronics manufacturing mogul Barre Seid engineered the same sort of transaction to avoid a $1.7bln tax bill and to fund a conservative activist who fought abortion rights.
The point here is that we're often blinded by the next shiny news on social media, that we rarely stop to think about what we're reading or, worse, sharing.
Avoiding this, has been my mission since I started posting regularly on Linkedin around a year ago. I hope my posts also helped other people see the other side of the coin in flashy news stories.
Bloomberg: Patagonia Billionaire Who Gave Up Company Skirts $700 Million Tax Hit
Forbes: Yvon Chouinard And The Patagonia Purpose Trust— What Is It And Will It Work?
CBS News: Patagonia founder gives away company to climate-change organization