Types of Philanthropic Foundations

There are several types of philanthropic foundations. These include International foundations, Operating foundations, and corporate foundations. Each of them has its own set of rules and guidelines. Public charities have less control and fewer guidelines than private foundations.

Operating Foundations

An operating foundation is an entity with its charitable activities. It funds its philanthropic programs and services and will likely only make small grants to nonprofits outside its organization. Unlike private foundations, operating foundations do not have to distribute all their assets to charitable organizations. Instead, they may receive donations from other nonprofits and have tax benefits, such as deductions on cash contributions up to 60 percent of the donor’s adjusted gross income. They are also not subject to the public support test and are not required to make a minimum number of charitable distributions.

It is observed in Kirk Chewning Cane Bay Partners, located in St. Croix, that an operating foundation can be a powerful tool for increasing philanthropy. However, these organizations have administrative costs estimated at $ 2 billion to $ 3 billion per year. In addition, the grants provided by such organizations must also comply with the foundation’s procedures, which can be lengthy and detailed.

To be effective, operating foundations must rethink governance systems. Board meetings are often the primary time for discussing specific grant allocations. Without a strategic plan and clear goals, boards cannot correctly delegate their grant selection process to staff. Furthermore, a board without clear strategies cannot assess grantees’ experience.

Private foundations can also be operating foundations, but they must meet specific requirements before they can be tax-exempt. Also, these private foundations are generally funded by individuals, families, or corporations and are governed by a board. They must abide by strict rules and regulations regarding their business operations, which may generate a significant tax liability for the parties involved. An operating foundation must have certain assets, endowment, and support levels to be eligible for tax-exempt status.

International Foundations

International foundations are philanthropic organizations that are usually based outside the United States. They make grants in their own countries and also to nonprofit organizations abroad. Some foundations are public charities, and others are private foundations. Most of the foundations in the world are located in other countries. Contributions to international foundations are not deductible under U.S. tax laws, so it is vital to check carefully before contributing.

International foundations have a diverse range of missions. Some focus on regions like Africa, Asia, and Latin America. Some are focused on international development, while others are dedicated to a particular cause or region. Some promote local grantmaking. A few have national networks or work on promoting collaboration among foundations. In addition to providing grants, foundations can provide management and advisory services to nonprofits. Their clout and expertise can improve the effectiveness of nonprofit organizations. This can increase the social impact of a single grantee and benefit other nonprofits.

Corporate Foundations

Currently, there are 3,106 corporate foundations in the United States. These foundations generate $12 billion in annual revenue and hold assets worth $99 billion. Some of these foundations are dedicated to helping children and families in need. Others aim to promote a better world for society.

While fewer corporate foundations are classified as public charities, those who qualify to enjoy certain extra benefits qualify as public charities; the foundation must raise at least one-third of its funds from several sources and have no single donor who contributes more than 2% of the total. In addition, it must submit an extensive 990-PF tax return each year. If a foundation doesn’t meet these requirements, it may be fined.

Corporate philanthropy can be a decisive competitive advantage for companies. Focusing on important causes to the company’s strategic direction can create a virtuous cycle that benefits the company and society in general. Furthermore, philanthropic activities can increase the competitive context of the corporation and lead to a higher return on investment.

Corporations can use their expertise and assets to benefit society in a way that individual donors rarely can. Their employees and internal resources make them more efficient than individuals.