A foundation (also a charitable foundation) is a legal categorization of nonprofit organizations that will typically either donate funds and support to other organizations, or provide the source of funding for its own charitable purposes.
This type of non-profit organization differs from a private foundation which is typically endowed by an individual or family.
Description
One of the characteristics of the legal entities existing under the status of "Foundations", is a wide diversity of structures and purposes. Nevertheless, there are some common structural elements that are the first observed under legal scrutiny or classification.
Chart of a foundation
Foundations in civil law
The term "foundation," in general, is used to describe a distinct legal entity.
Foundations as legal structures and/or legal persons, may have a diversity of forms and may follow diverse regulations depending on the jurisdiction where they are created.
In some jurisdictions, a foundation may acquire its legal personality when it is entered in a public registry, while in other countries a foundation may acquire legal personality by the mere action of creation through a required document. Unlike a company, foundations have no shareholders, though they may have a board, an assembly and voting members. A foundation may hold assets in its own name for the purposes set out in its constitutive documents, and its administration and operation are carried out in accordance with its statutes or articles of association rather than fiduciary principles. The foundation has a distinct patrimony independent of its founder.
Foundations are often set up for charitable purposes, family patrimony and collective purposes.
Independent Foundations
Independent foundations are the most common type of private foundation. They are generally founded by an individual, a family or a group of individuals. They may be operated by the donor or members of the donor’s family—a type often referred to as a family foundation—or by an independent board.
Because family foundations have unique needs, MCF often refers to Private Independent and Private Family Foundations separately.
Corporate Foundations
Corporate foundations are created and funded by companies as separate legal entities, operated by a board of directors that is usually comprised of company officials. Corporations may establish private foundations with endowments, make periodic contributions from profits, or combine both methods to provide a foundation’s resources. Some companies operate in-house corporate giving programs, which unlike corporate foundations are under the full control of the company and are not required by law to follow the same IRS regulations. Many corporations maintain both a foundation and a corporate giving program.
Community/Public Foundations
Community and other public foundations are publicly supported foundations operated by, and for the benefit of, a specific community or geographic region. They receive their funds from a variety of individual donors, and provide a vehicle for donors to establish endowed funds without incurring the costs of starting a foundation. Community/public foundations are administered by a governing body or distribution committee representative of community interests.
There is also a type of foundation that does not generally make grants, called an operating foundation. The majority of an operating foundation’s funds are expended to operate its own charitable programs.
What Limits Are There on Foundation Grant making?
Some foundations have broad discretion regarding the charitable causes to which their grants can be directed. Others are sharply limited—often legally—by the mandate of the foundation donor. Some foundations are restricted to making grants only to specific causes; others must restrict their grant making to a specific geographic area.
How Are Foundations Regulated?
Foundations are governed by stricter regulations than public charities, which generally raise money from the public to operate institutions or programs. Both foundations and public charities might use the term "foundation" in their titles, but very different laws apply to each. The IRS requires that independent and corporate foundations:
This type of non-profit organization differs from a private foundation which is typically endowed by an individual or family.
Description
One of the characteristics of the legal entities existing under the status of "Foundations", is a wide diversity of structures and purposes. Nevertheless, there are some common structural elements that are the first observed under legal scrutiny or classification.
Chart of a foundation
- Legal requirements followed for establishment
- Purpose of the foundation
- Economic activity
- Supervision and management provisions
- Accountability and Auditing provisions
- Provisions for the amendment of the statutes or articles of incorporation
- Provisions for the dissolution of the entity
- Tax status of corporate and private donors
- Tax status of the foundation
Foundations in civil law
The term "foundation," in general, is used to describe a distinct legal entity.
Foundations as legal structures and/or legal persons, may have a diversity of forms and may follow diverse regulations depending on the jurisdiction where they are created.
In some jurisdictions, a foundation may acquire its legal personality when it is entered in a public registry, while in other countries a foundation may acquire legal personality by the mere action of creation through a required document. Unlike a company, foundations have no shareholders, though they may have a board, an assembly and voting members. A foundation may hold assets in its own name for the purposes set out in its constitutive documents, and its administration and operation are carried out in accordance with its statutes or articles of association rather than fiduciary principles. The foundation has a distinct patrimony independent of its founder.
Foundations are often set up for charitable purposes, family patrimony and collective purposes.
Independent Foundations
Independent foundations are the most common type of private foundation. They are generally founded by an individual, a family or a group of individuals. They may be operated by the donor or members of the donor’s family—a type often referred to as a family foundation—or by an independent board.
Because family foundations have unique needs, MCF often refers to Private Independent and Private Family Foundations separately.
Corporate Foundations
Corporate foundations are created and funded by companies as separate legal entities, operated by a board of directors that is usually comprised of company officials. Corporations may establish private foundations with endowments, make periodic contributions from profits, or combine both methods to provide a foundation’s resources. Some companies operate in-house corporate giving programs, which unlike corporate foundations are under the full control of the company and are not required by law to follow the same IRS regulations. Many corporations maintain both a foundation and a corporate giving program.
Community/Public Foundations
Community and other public foundations are publicly supported foundations operated by, and for the benefit of, a specific community or geographic region. They receive their funds from a variety of individual donors, and provide a vehicle for donors to establish endowed funds without incurring the costs of starting a foundation. Community/public foundations are administered by a governing body or distribution committee representative of community interests.
There is also a type of foundation that does not generally make grants, called an operating foundation. The majority of an operating foundation’s funds are expended to operate its own charitable programs.
What Limits Are There on Foundation Grant making?
Some foundations have broad discretion regarding the charitable causes to which their grants can be directed. Others are sharply limited—often legally—by the mandate of the foundation donor. Some foundations are restricted to making grants only to specific causes; others must restrict their grant making to a specific geographic area.
How Are Foundations Regulated?
Foundations are governed by stricter regulations than public charities, which generally raise money from the public to operate institutions or programs. Both foundations and public charities might use the term "foundation" in their titles, but very different laws apply to each. The IRS requires that independent and corporate foundations:
- Annually pay out at least 5 percent of the value of their investment assets.
- Pay an excise tax of 1 or 2 percent on their earnings.
- Give money only to other 501(c)(3) organizations, with a few rare exceptions.
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