What is a Foundation?
In the field of philanthropy, the term “foundation” has no precise meaning. Carnegie Corporation of New York, the Chicago Community Trust, the Duke Endowment, Rockefeller Brothers Fund are four institutions among the nation’s top grantmaking foundations, but none has the word “foundation” in its name. Conversely, many nonprofit organizations that make no grants, such as the Heritage Foundation, also call themselves “foundations.” The difficulty of identifying grantmaking foundations by name alone creates confusion and produces misunderstanding about the scope and activities of the foundation field.
A foundation is a nonprofit, nongovernmental organization with a principal fund or endowment of its own that maintains or aids charitable, social, educational, religious, or other activities serving the public good, primarily by making grants to other nonprofit organizations. There are approximately 56,600 foundations in the U.S. today.
The Internal Revenue Code governs the operations of both private foundations (including family, independent and company foundations) and public charities (community foundations and those nonprofit charitable organizations which raise funds to conduct their programs and operations). The rules governing private foundations are stricter in limiting foundation activities than are those for public charities.
A. Private Foundations
Private foundations make grants based on charitable endowments. The endowment funds come from one or a small handful of sources — an individual, a family or a corporation. Because of their endowments, they are focused primarily on grantmaking and generally do not raise funds or seek public financial support the way public charities (like community foundations) must.
Corporate Foundations:
In the corporate context, however, foundations are not always endowed. Instead, it is common for the parent company to provide annual funding based on the foundation’s budget, and administrative expenses are paid by the parent company.
Examples: Motorola Foundation, Dreyers Foundation
For more information, go to:
http://www.cof.org/Content/FAQ/DisplayCollection.cfm?blockID=1205#6501.
For the Council on Foundations, STEWARDSHIP PRINCIPLES FOR CORPORATE GRANTMAKERS , go to:
http://www.cof.org/files/Documents/Corporate_Grantmaking/Corporate%20Principles/Principles_Booklet_Corporate_FINAL.pdf
Family Foundations:
The Council on Foundations defines a family foundation as a private foundation in which the donor or the donor’s relatives plays a significant governing role. Most family foundations concentrate their giving locally in their communities. However, a growing number are now funding internationally. Family foundations give over forty percent of the $27.5 billion in foundation grants awarded in the United States.
Examples: Paul G. Allen Family Foundation, The Anschutz Family Foundation
For more information, go to:
http://www.cof.org/files/Documents/Family_Foundations/FFS_What_is_Family_Philanthropy.pdf
For the Council on Foundations, STEWARDSHIP PRINCIPLES FOR FAMILY FOUNDATIONS, go to:
http://www.cof.org/Content/General/Display.cfm?contentID=2045.
Independent Foundations:
Private independent foundations are distinct from private family or corporate foundations in that an independent foundation is not governed by the benefactor, the benefactor’s family or a corporation. Of the largest private foundations in the United States, most are independent foundations, although they may have begun as family foundations.
Examples: Ford Foundation, Carnegie Foundation
For the Council on Foundations, STEWARDSHIP PRINCIPLES AND PRACTICES FOR INDEPENDENT FOUNDATIONS, go to:
http://www.cof.org/files/Documents/Stewardship%20Principles%20%20Best%20Practices%20Initiative/Independent/Independent_Principles_-_FINAL.doc
Operating Foundations
Private operating foundations are not primarily grantmaking entities. Instead, they are private foundations that use the bulk of their resources to provide charitable services or run charitable programs of their own. They operate facilities or institutions devoted to a specific charitable activity spelled out in their charters. For example, some conduct research while others provide a direct service by operating museums, facilities for the handicapped, historical sites, etc. Many hospitals and universities maintain operating foundations, whose grants are directly related to the organizations programs.
An operating foundation is subject to nearly all the applicable restrictions and reporting requirements of other private foundations. It receives less beneficial tax treatment than a public charity because it is not seen as being supported by, and operated for the good of the public. Donors to a private operating foundation may take advantage of the more liberal charitable deduction rules applicable to gifts to public charities. However, to qualify as an operating foundation, the foundation must spend sat least 85% of its net investment income directly for the active conduct of its own exempt activities (as opposed to making grants).
B. Public Foundations
The term “public foundation” has come into common usage only recently to describe public charities that have a primary purpose of making grants. A public foundation normally receives its assets from multiple sources, which may include private foundations, individuals, government agencies, and fees for service. Moreover, a public foundation must continue to seek money from diverse sources in order to retain its public status.
Community Foundations
Community Foundations are supported by and operated for a specific community or region. Their grantmaking activities are administered by a governing body or distribution committee representative of community interests. According to the Council on Foundations, Community foundations make up one of the fastest growing sectors of philanthropy in the United States today ; there are nearly 700 community foundations in the U.S. Community foundations in the United States hold approximately $39.4 billion in assets and are located throughout the country. Community foundations received an estimated $4.2 billion in gifts in 2004. They accept gifts of various sizes and types from private citizens, corporations, government agencies and other foundations. Nearly every type of gift (including real estate, closely held stock and artwork) can be contributed to a community foundation. Gifts are made from bequests and by living donors through various types of funds and deferred giving vehicles. In 2004, community foundations gave more than $3 billion to a wide variety of nonprofit activities, including urban affairs, the arts, education, environmental projects, health and disaster relief.
Examples: The Denver Foundation, New York Community Trust, Montana Community Foundation
For more information go to:
http://www.cof.org/Content/General/Display.cfm?contentID=675
Sources:
The Foundation Center http://www.fdncenter.org/home.jhtml
Youth in Philanthropy http://youth.fdncenter.org/youth_about.html
The Council on Foundations http://www.cof.org/index.htm
Tags: corporate foundations, family foundations, Foundations, grantmaking, nonprofit organizations, operating foundations, private foundations
