foundations

A non profit organization that supports many different types of charities is usually referred to as the foundation. Donations, or endowments, come in from families, corporations and even private individuals and foundations will invest the donations or endowments and then help to run programs using the earned income.

There are a few foundations that have a great deal of discretion when it comes to which of the charitable organizations to whom their grants may be given. Some, however, are very limited by the donors mandate and some are only allowed to give funds to a specific cause. Still others have to limit the “grant making” to a particular geographical area.

One of the three basic types of foundations is the Corporate Foundation, which is funded and formed by a company as a separate legal entity, run by a board of directors that is made up of the company officials. They may also establish private institutions with donations or endowments and make periodic contributions or even combine both of these in order to provide resources. The foundation company may also operate internal programs, which unlike other corporations, are under total control of the company and do not have to adhere to the same IRS laws. A Public/Community Foundation is supported publicly by organizations operating for the benefit of a particular community or a specific geographic location. Finally, Independent Foundations are the most often heard of and are usually created by a family, a group of individuals or perhaps just one individual and are required to be run by the donor or their family.

Foundations are regulated by laws and rules that are much stricter than they are for public charities, which are generally funded by raising money from the public in order to operate and run the programs and institutions. While both might use the term “foundation” in their title or name, very different regulations apply to each one.

The Internal Revenue Service stipulates that corporate and independent foundations must pay at least 5% of that year-end fair market value of their assets. The foundation must also pay an excise tax of 1 or 2% on their earnings, as well as giving money only to other 501(c)(3) organizations, which means that these types of organizations are prohibited from participating or intervening in a political campaign in favor of or opposed to any candidate. Of course, most of the public/community foundations are considered a public charity by the IRS and are not subject to the same regulations as a corporate or independent foundation.