What are Foundations?

Grantwriters need to have a clear idea of what foundations are, since many proposals will be sent to foundations. Let’s cover what philanthropic foundations are and the types that exist.

According to the Minnesota Council on Foundations (MCF), “A foundation is a nonprofit organization that supports charitable activities in order to serve the common good.”

There are several different types of foundations that exist under the law. The first, Independent Foundations, are the most common and typically are created by individuals or families that want to promote attention to a certain problem or approach to a problem.

Independent foundations can be either family foundations or other independent foundations, although there is no precise legal definition of the term “family foundation”, as they are part of the larger category of independent foundation.

Perhaps the world’s largest foundation is an independent family foundation, the Bill and Melinda Gates Foundation, which gave away $3.4 billion dollars in both 2011 and 2012.

The key elements demarcating family foundations, according to the Council on Foundations, are that the funding comes from members of a single family, and at least one member of the family continues to provide strong leadership for the foundation.

Other independent foundations do not start off with or continue with a strong family identify.

Corporate foundations are set up by corporations as legally separate entities, overseen by a board of directors often made up of corporate directors and employees. Funding for corporate foundations varies, but can include an endowment, contributions from current corporate profits, or even donations from employees.

Some corporate foundations provide grants only to locales or states where the parent company has a strong presence; others have broader eligibility criteria.

Corporate foundations are not the same as corporate giving programs, which often donate goods and services rather than cash, or provide only small amounts of direct funding for nonprofit projects.

Another difference is that corporate foundations are governed by Internal Revenue Service rulings and law, while corporate giving programs are entirely in the hands of the corporation that they are a part of.

Community foundations are the third major type of foundation. These are tied very closely to a particular geographic area and are usually funded by pooling smaller amounts of donations from people in the community. Donation decisions are made by a board of directors that is supposed to be representative of the community at large.

All private foundations are required to follow at least three very important regulations in order to maintain their standing as foundations according to the Minnesota Council on Foundations.

First, they must pay out (donate) no less than five percent of the value of their investment assets. Second, they pay taxes of one or two percent of their earnings. Third, with rare exceptions, they can only donate to other organizations that are 501c3 (charitable) organizations.

\Not all organizations with the word “foundation” in their name provide grants to applicants. The Henry J. Kaiser Family Foundation, for example, uses its resources to develop non-partisan information on health care issues (information from www.kff.org ) so it is important when searching for foundation funding, to carefully look up information on each prospective foundation.

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