What is a Foundation?

Simply stated, a foundation is a tax-exempt entity that makes grants to other organizations conducting charitable work. There are two types of foundations recognized by the Internal Revenue Service: private foundations and public foundations. Private foundations, like the GAR Foundation, receive almost all of their funds from a single source, whether an individual, a family, or a corporation. Public foundations, such as community foundations, receive funding from multiple sources, which may include individuals, government agencies, or even private foundations. A public foundation must continually secure funding in order to maintain its public status.

A social compact lies beneath foundation law. A person or company that establishes a foundation receives certain tax benefits in doing so. In exchange for those benefits, the foundation must comply with the tax laws set forth in the Internal Revenue Code. Those laws are designed to ensure that the foundation accomplishes sufficient public good to justify the foundation’s tax-exempt status. For instance, private foundations are required annually to distribute, for charitable purposes, at least 5% of the average market value of their investment holdings. All foundations are accountable to the general community and must make information about their charitable activities publicly available.

Foundations, unlike corporations, do not have shareholders; however, they may have a board, an assembly and voting members.

For more information about foundations and philanthropy, see the Council on Foundations website by clicking here.