Tuesday, 15 June 2021 11:58

Atlassian Foundation leads creation of Deed of Equity Gift for startup founders Featured

By Staff Writer
Atlassian Foundation CEO Mark Reading Atlassian Foundation CEO Mark Reading

Australian software company Atlassian’s non-profit charity support group Atlassian Foundation has partnered with PwC Australia, Herbert Smith Freehills, and Australian Philanthropic Services to create a Deed of Equity Gift.

Atlassian Foundation says the deed provides initial guidance for startup founders who want to have an impact on the world around them by offering “legal substance to validate their commitments to making a difference”.

The deed of equity gift will see founders work with independent advisors on how to pledge equity to their chosen non-profits in order for them to clearly demonstrate a substantial commitment to employees, customers, and other stakeholders.

Atlassian says that in 2020, its Return on Action report found that Australians want companies to put their money where their mouth is with 69% of workers agreeing that businesses should be just as concerned with their societal impact as their financial performance – and the deed of equity gift initiative provides an option for startups keen to give back but may be struggling due to little or no profit.

Atlassian co-founded philantropic group Pledge 1% in 2014 continues to Pledge 1% of equity, profit, product, time, or a combination of all four to non-profit organisations.

According to Mark Reading, Head of the Atlassian Foundation, startup founders want to have an impact on the world around them and 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”.

Reading says that Pledge 1% has prepared detailed guidance on ways for USA-based members to implement their equity pledges, but there has been no equivalent guidance in Australia, until now.

Participants can choose to pledge 1% of equity, profit, product, time, or a combination of all four.

According to Reading, 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,” Reading notes.

“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,” says PwC Tax Partner Jonathan Malone.

“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.

“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.

“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 concluded.

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