Pledge 1% Boston, the Boston Foundation and TUGG offer the following answers for informational purposes only. None of the following should be considered legal advice.
The good news is that over 2,700 companies in over 60 countries around the world have taken the pledge. You are in good company and we know that someone has the answer to any question you may have. For the most frequently asked questions, take a look below. If you don’t see what you need contact us here to learn more.
How do Pledge 1% Boston and the global Pledge 1% office collaborate? Are there differences in the programs?
Pledge 1% Boston has gained traction over the last several months (launched during HubWeek last year) because of the vibrant innovation sector’s increasing interest in helping nonprofits succeed as the sector succeeds. Pledge 1% Boston is building a strong community of entrepreneurial giving in Boston while connecting our members to the larger global network of startup philanthropy via Pledge 1%. Pledge 1% Boston continues to partner with Pledge 1% by sharing pledges, resources, best practices, impact stories, and more. By joining Pledge 1% Boston, you are automatically recognized in the Pledge 1% global network and eligible for the member benefits provided by that program.
Are there fees associated with Pledge 1%?
There are no fees associated with joining Pledge 1% Boston. There are fees associated with creating a Donor Advised Fund with the Foundation but this is about 3 times less expensive and labor intensive than creating and managing an independent foundation. With a Donor Advised Fund, you don’t need to file taxes, conduct an audit, pay legal fees, build and manage a Board, or hire an Executive Director.
What’s the best time to Pledge 1%?
You can sign a pledge intent form at any time. The commitment will go into effect at or near a successful exit event in which the equity that you set aside will be liquidated. You can use these funds to create a Donor Advised Fund, to directly support nonprofits or a combination of both.
Does it matter what kind of equity I use to fulfill my pledge?
The first step is to sign an intent form, indicating you or your company are becoming a Pledge 1% Boston member.
Your pledge can be for any form of equity. Pledge 1% Boston encourages early-stage companies to make grants of stock options (or equivalents). Our intent form is structured to reflect that.
For founders’ pledges, you should consult with your professional advisors as to the best form of equity to give. If you are past early-stage, consider giving equity (rather than options) to maximize your deduction. If you transfer your gift to the intended nonprofit before an exit event, you can avoid realizing the gain to your income.
What if my company is acquired?
If your company is acquired you can choose to open a Donor Advised Fund for yourself and/or with your company at the Boston Foundation. The acquisition agreement will typically include some purchase offer to existing shareholders. Pledge 1% Boston will meet with you to discuss your philanthropic options as you near an exit event or at any time you wish. Again, Pledge 1% Boston will pass 100% of the value onto your nonprofit designees. Pledge 1% Boston is happy to oblige the acquisition process in whatever way we can.
If your company is acquired you can also choose to begin a Donor advised fund with the Boston Foundation. Donor advised funds are a philanthropic vehicle that offers donors the chance to make an irrevocable charitable contribution, receive immediate tax recognition for the contribution, while grant-making to eligible 501(c)(3) organizations throughout the life of the fund. You can make grants from the fund and also add to the fund at any time.
How do I convince my board of advisors that my company should participate?
Here are a couple of resources to help you present the concept of Pledge 1% Boston to your Board of Advisors:
How will this ultimately work if my company goes public and the underwriters are asking for lock-up agreements?
Many investment agreements require an equity holder to promise not to sell for a period of time after a public offering, so any transfer of the equity interest should require compliance by the transferee with this lock-up commitment. Pledge 1% Boston will agree to comply with a lock-up obligation of the transferor.
Are there any restrictions in the organizational documents that must be reviewed, revised, or waived so I can gift stock, warrants or LLC membership units in advance of an exit event? What if my stock is restricted and/or unvested?
Some company charters, bylaws, shareholders agreements, or operating agreements restrict the transfer of equity interests to third parties and require the consent of the company or other equity holders, so those documents must be reviewed to comply with notice, consent or waiver requirements. Normally, restricted shares are unregistered under securities law, and require a securities law exemption on a sale, but not for a gift. Unvested shares or warrants are usually not transferable until they become vested, so the vesting terms of the granting instrument must be reviewed before making a gift.
What if the company never has a liquidity event or it goes out of business?
We hope that all of our pledging companies experience successful exits – but if that’s not the case, that’s okay, too. If you have pledged company equity via a warrant, until there is an exit event, the warrant has no value.
Will you verify we’ve fulfilled our pledge?
The pledge form is the first step in acknowledging your intention to give back to your community. We’ll provide you tools to support your pledge, but except in the case of the warrant for equity options, our pledge materials are non-binding. We want to support you and your team in fulfilling your commitment and we encourage you to track your impact so you can share your story with your employees, investors, and the broader community – along with other members of Pledge 1% Boston. There is no audit function of our program. Once a year, we’d love for you to participate in a program-wide survey of your company to help us measure our collective impact and build a library of successful stories to inspire other companies in Boston.
We will work with you or company to fulfill your pledge in the best way possible.
Are there certain shares that I should use to satisfy my charitable gift so as to maximize tax benefits?
Contributing shares with the lowest basis will reduce the gain recognized to the donor on the subsequent sale of the company. In addition, the fair market value of stock that qualifies for long-term capital gain treatment (owned 1 year or more) can be deducted as a charitable contribution whereas the deduction is limited to basis if the stock is short-term.
Can I give privately held stock, and if I do, how might that affect the value of my charitable deduction?
The value of privately held stock may be discounted due to minority interests or lack of marketability. This will reduce the amount that can be deducted as a charitable deduction.
Treasury shares, the company’s own issued shares that a company has bought back and transferred into treasury i.e. when an employee leaves the company.
Founders shares, the original founders of the company’s equity.
Common Stock, the standard equity that is owned by most stakeholders, held on the cap table and offers you the chance to. These shares can have both voting and non-voting rights.
Warrants, which are issued directly by the company are typically issued for the transaction and do not have voting rights.
You do not need to decide which nonprofits to support upon pledging.
The Boston Foundation provides further insights into needs in the local community and will connect you and your company to organizations doing effective work to solve some of society’s biggest problems. The Boston Foundation also serves as a vehicle through which a member can create a Donor Advised Fund, this is about 3 times less expensive and less labor intensive than creating a separate foundation. As the donor, your funds are then issues to nonprofit organizations based on your recommendations.
The Boston Foundation has over 700 Donor Advised Funds, working with individuals and companies to have maximum impact on their communities.
How can our company get involved in the community now?
As a community foundation, the Boston Foundation is very involved in Greater Boston. Beyond the more formal options like starting a Donor Advised Fund through the foundation there are a number of forums, resources and opportunities for involvement that founders and employees at companies can engage in. TUGG has a number of events throughout the year with which companies and founders can participate.
We will regularly communicate opportunities for you and your teams to learn about issues in the community, including housing, education, economic development, health and wellness, and arts and culture.
How can public/more mature companies participate in Pledge 1% Boston?
At this point in your company’s evolution, it might make more sense to consider making a founder’s equity commitment, as opposed to a commitment from the company. The founder could make a commitment on behalf of the company leveraging their own personal shares. There may be a tax incentive to do so - especially if there is value to the equity.
I want to pledge equity, but my co-founders aren’t there yet. Can I pledge my personal equity?
Yes, for some founders it makes more sense for them to pledge their own personal equity instead of the company’s equity. Our membership includes examples of both.
Do I need to ask my investors?
For corporate pledges yes. For founder’s pledges no.
Is my pledge binding? Do I need to get my lawyers involved?
Joining Pledge 1% Boston is not binding but you will want to consult your lawyers when you implement the pledge.
Does my company have to give back locally, what if we are passionate about an international cause?
Pledge 1% Boston can help you give locally as well as anywhere in the world.
Do we have to be HQ here to do Pledge 1% Boston?
Pledge 1% Boston is based locally and focuses on the Greater Boston area.
Does this cost me anything?
How do I talk about this to my employees?
There are several resources Pledge 1% Boston can share about making the pledge. Members also gain access to our P1 Insider, which will provide consist information about Pledge 1% Boston and its various members. Employee may also learn more about Pledge 1% Boston through attending our events.
My company is structured as an LLC, does that make a difference?
Pledging 1% is an option for LLCs. Email here, to learn more.