What Are the Different Types of
Foundations?There are three basic types of grantmaking foundations:
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.
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
Grantmaking?
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
grantmaking 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:
- Pay out at least 5 percent of the year-end fair market value
of their 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.
Nearly all community/public foundations are considered
public charities by the IRS. As such, they are not subject to the same regulatory
provisions as independent and corporate foundations.
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