'I don’t need a 200-foot yacht': Boat baron gives up $400 million payday to pledge all profits to charity instead

The 83-year-old multimillionaire was ready to step down from his active role at the company. He considered selling it — and got to the point of receiving offers — but was worried any new owner would strip back his employees’ generous benefits. “I had no confidence that a new owner would keep that culture going,” said Smith. “This company had a soul, and I didn’t want to lose that.”

Instead of selling, he decided to set up a rare type of trust that would allow his company to still function to his wishes, even after he stepped away as CEO. All profits will go toward healthcare, conservation and education causes he cares about.

Go public or ‘go purpose’

A purpose trust is a form of steward ownership — a setup where a company’s voting rights are separated from its money.

Today, just 81 companies have transferred their ownership to purpose trusts, up from five in 2018, according to the consultancy Purpose Owned.

Purpose trusts have no beneficiaries; they’re overseen by committees, which appoint trustees to manage them. Both are expected to operate according to the former owner’s wishes, and as such are generally people the previous owner trusted. The trust also generally has an enforcer who ensures it’s run correctly.

At least some of their rise in popularity can be attributed to Patagonia publicly announcing its own purpose trust in 2022.

“Earth is now our only shareholder,” said Patagonia founder Yvon Chouinard in a press release for the company. “Instead of ‘going public,’ you could say we’re ‘going purpose.’”

Giving to charity — and the taxman

Notably, a purpose trust is a non-charitable trust. Charitable trusts are generally overseen by the government through state attorneys’ general offices — non-charitable trusts don’t have that same requirement.

While Smith gave all of the company’s voting stock to his purpose trust, he opened a separate nonprofit to hold all of the nonvoting stock. That will allow him to dodge much of the tax bill when setting things up; since a purpose trust is non-charitable, a big enough gift of stock to it qualifies for a gift tax.

Chouinard did the same when he put all of the company’s voting stock into the Patagonia Purpose Trust and all of the nonvoting stock into the nonprofit Holdfast Collective. Even so, Chouinard reportedly had to pay $17.5 million for the stock gifted to the Patagonia Purpose Trust.

Any company profits that are funnelled into the nonprofit are tax-exempt as well.

Smith clarified he will not run on any committees or boards and isn’t getting any kind of personal benefit from the arrangement. He will however take an annual salary as a “non-operational chief executive emeritus.”