Starting a foundation is an effective way to put money back into your community or other communities in need. If you're willing to put in the work, a foundation can start with anyone and it can be an incredibly positive force. Charities and other organizations have a place in a social justice-geared worldview, and often they can accomplish things that other groups cannot.
What is a foundation?
A foundation is an organization that runs programs and/or gives money to them. Foundations can look very different, but in general, it's helpful to think of them as falling into one of two common categories: private and public.
A private foundation is set up by an individual or a family with family money or in some cases money from a corporation, such as the Ford Foundation. Private foundations are usually rolling out grants and taking in applications because they need to give a certain amount away every fiscal year. There are two further types of private foundations: private operating foundations and private nonoperating foundations. Private operating foundations, such as museums or the American Cancer Societym, perform charitable activities themselves. Private nonoperating foundations fund the activities of other nonprofits or NGOs that perform the actual activities, usually through grants.
A public foundation, also known as a public charity, a community foundation or a grantmaking charity, gets money from a more diverse group of sources (not just one family or corporation): individuals can donate, other foundations can contribute and in some cases, government agencies even give money to public foundations. Think Americares Foundation or Save the Children. Both private and public foundation contributions are tax-deductible, but the two types of foundations fill out slightly different tax forms. Private foundations file Form 990-PF with the IRS, while public foundations file the regular Form 990.
Steps for starting a foundation.
1. Define your mission.
Before beginning the legal proceedings, it’s important to know the who, what, why and when of your future foundation. What is your specific area of interest? Whom do you want to help? How are you going to make it happen? Arguably, the most important of these questions for you to answer will be the “why,” so put time into developing a mission statement, a vision, goals and even deliverables.
2. Make it legal.
First, choose your state. If you are creating a private foundation from your company and you work in multiple states, or if you travel between different states, make sure to ask an attorney or contact the respective Secretary of State’s offices to make sure you incorporate your foundation into the right state. Once you know the state where you'll be registering, you can check that your desired foundation name isn’t registered to any other organization with your specific Secretary of State office.
3. Establish by-laws, procedures and more.
Once you have confirmed your name is free, it is time to draft an “Article of Incorporation.” This document will govern your corporation’s management. At the same time, you may want to name board members, pay a filing fee, apply for an employer identification number, file Form 1023 to receive tax-exempt status and establish by-laws. By-laws will make up your foundation’s “constitution” and can include anything from terms of service for board members, to procedures and guidelines for funding. Guidelines for funding are especially important and should include the process for selection of grantees, applications, grant amounts and calendars.
4. Be careful.
Best to get your ducks in a row early and not take any chances. Since foundations give people and corporations tax benefits, they are often under scrutiny to ensure there is no corruption or illegal behavior going on. Drafting a “conflict of interest” policy and other anti-corruption policies will go a long way to ensuring that accidents don’t happen and showing that you're serious about using your foundation for the right reasons. Such policies can explain how your foundation will deal with situations in which a board member or employee’s personal interests conflict with the interests of the foundation, as well as other best practices. The best policy is usually to disclose potential conflict-of-interest areas upfront and then excuse people from votes or tasks in which a conflict of interest would be likely to present itself.
5. Bring in the money.
Especially if your foundation is public, fundraising will be an intimate part of your foundation’s activities and essential to building sustainability. There are several ways to help your foundation raise money. First is having a well-designed and engaging website that encourages visitors to donate. Second is having clear and comprehensive documentation and literature on what your foundation does, what the money will go to (broken up by percentages), the difference it makes and so on. Finally, having a specified person or period of time dedicated to resource mobilization can help you balance strategies from corporate and government sponsorship to crowdfunding to the investment of funds.
- You can run multiple charitable programs through a foundation, without having to set up separate nonprofits.
- Having a foundation enables you to give charitably at any time: foundations accumulate funds but choose when they're distributed. This can make managing an organization with persistent running costs easier.
- Since a foundation isn’t a legal entity in and of itself, you have room to make the foundation what you want to do the most good.
- Even with increased fiscal flexibility, you maintain full legal control over governance, spending and assets.
- Foundations help you create a legacy.
- A family foundation can get family involved in charitable activities.
- Foundations can help you give directly to individuals in need, with tax-deductible grants.
Often, we think of foundations as wealthy individuals or organizations giving money —The Bill and Melinda Gates Foundation and The Rockefeller Foundation, for instance — and this makes sense. After all, broadly speaking, this is an organization whose main purpose is to make grants and award money for charitable purposes. But foundations formed by billionaires are far from the only types of these organizations doing good in the world. Community-built movements and foundations are not only effective, but they are also sustainable and needed.