Startup founders want to have an impact on the world around them. They are fixated on disrupting established industries in a way that makes life somehow better for customers. And they’re usually also focused on wanting to make a philanthropic commitment related to social or environmental causes.
This concept of organisations doing good in the world is also important to employees across industry sectors and in both large and small companies. In our 2020 Return on Action report, 69 percent of Australian workers told us businesses should be just as concerned with their societal impact as their financial performance.
Atlassian was a cofounder of Pledge 1% back in 2014, a non-profit that helps startups bake philanthropy into their business model. Participants can choose to pledge 1% of equity, profit, product, time, or a combination of all four. As they grow, so does their contribution to society.
Validating your commitment
Pledging equity is valuable for all companies, but especially startups, who are interested in giving back, but may have low or even no profit.
However, equity pledges have always been difficult to manage. It’s easy to make a public statement but there’s no legal substance to validate this deep commitment to making a difference. A change in circumstances could mean that a well-intended pledge never translates into non-profit funding. Or it could take years for those funds to be released and distributed.
Pledging equity can also complicate tax issues when Australian companies and founders make a commitment today to transfer share ownership or make cash-equivalent donations years down the track. This can act as a disincentive for startups that would otherwise want to formalise their equity pledge under a deed.
This is why the Atlassian Foundation has partnered with PwC Australia, Herbert Smith Freehills, and Australian Philanthropic Services, who each provided pro bono support, to create a Deed of Equity Gift. The Deed provides a clear legal pathway for founders to formalise their pledge of equity to their chosen non-profits, clearly demonstrating this commitment to employees, customers, and other stakeholders.
“We’re delighted to have played a role in addressing some of the potential challenges in the tax system when founders take the step of formalising their pledge. Would-be philanthropists are looking to give back, but don’t want to be caught up in tax complications that create uncertainty and restrict the ability to make an impact,” says PwC Tax Partner Jonathan Malone.
“Triggering an up-front tax bill or missing out on a deductible gift are two examples that could prevent founders from pledging their support to worthy causes that are meaningful to their people and organisations,” he continues. “We have worked with a founder that has received a private ruling from the ATO to confirm their tax position in relation to the Deed of Equity Gift.
“While founders should obtain independent tax advice for their own circumstances, the Deed of Equity Gift allows founders and philanthropic shareholders to follow a process to confirm their tax position and focus on their impact for our communities,” Malone concludes.
Tip
Download the Pledge 1% Deed of Equity Gift form now to get started.
Congratulations to Cangler
Andrew Herbert, the founder of data analytics and artificial intelligence startup Cangler, was the first to execute this Deed of Equity Gift. He obtained a Private Binding Ruling from the Australian Taxation Office to confirm the tax treatment based on his particular facts and circumstances.
“It was always my desire for Cangler to be a profitable social-impact corporation which balances purpose and profit by making the community a key shareholder in the business. I have a deep-seated passion and belief that we can combine technology, community, and business strategy to implement social change on a large structural scale in a sustainable manner to solve some of our biggest social inequality issues facing people experiencing hardship and disadvantage,” Herbert says.
“We initially took the pledge in February 2019, since we always wanted to engrain social impact and giving as part of our company DNA. We decided to execute the deed to make that promise legally enforceable. We’ve worked closely with the Atlassian Foundation, PwC, and Australian Philanthropic Services to execute the Deed of Equity Gift, which I hope will encourage other founders and organisations to follow suit.”
Atlassian made its pledge almost 20 years ago. As our business has grown, we’ve been able to make a positive impact on causes around the world. The pledge taken by our cofounders Scott and Mike has enabled us to pass A$50 million in donations this year and to have an asset base in excess of A$200 million in the Atlassian Foundation.
With the launch of this Deed of Equity Gift, we’re excited to help many other businesses make a positive impact on the world around them. It’s good for society and good for business.
Feel free to contact me (mreading@atlassian.com) if you’re a founder interested in executing the Deed. I’d be delighted to provide any support you need.