Philanthropy Basics

 

Foundation FAQ's           

What is a foundation?
A foundation is a nonprofit organization that supports charitable activities in order to serve the common good. Foundations are often created with endowments—money given by individuals, families or corporations. They generally make grants or operate programs with the income earned from investing the endowments. There are three basic types of grantmaking foundations:  independent, corporate and community.

What do foundations do?

Foundations are working in thousands of ways to improve the quality of life and to address vital issues of concern to society – in education, health care, human services, the arts and the environment. 

Foundations are regulated by the Internal Revenue Code which defines what types of activities are considered charitable. Most foundations give grants only to nonprofit, charitable organizations and are prohibited from getting involved in political activities. A small number of foundations will also provide grants to individuals, such as scholarships to attend a college or university.

Within these regulations, grantmakers are free to choose what kinds of issues to address. While many foundations support the more traditional causes of higher education and social service, this freedom to choose supports a vitally-needed diversity of operation that plays an important role in maintaining our social fabric. They are free to experiment with new ideas and model approaches, support activities that have not yet achieved public consensus and act with flexibility. They can provide the "risk capital" for new ventures and make long-term commitments to addressing community needs.

Foundations are working in thousands of ways to improve the quality of life and to address vital issues of concern to society – in education, health care, human services, the arts and the environment.

Foundations are working in thousands of ways to improve the quality of life and to address vital issues of concern to society – in education, health care, human services, the arts and the environment.

How many foundations are there?

Ohio Foundations
In 2008, Ohio ranked 7th in the nation in the number of foundations. Ohio’s 3, 277 foundations included 2,930 independent foundations, 150 corporate foundations, 68 community foundations and 129 operating foundations, with total assets of more than $15.1 billion and total giving surpassing $1.3 billion.

National Statistics
The number of active grantmaking foundations in the United States reached 75,595 in 2008. 

Grantmaking foundations held over $564 billion in assets, with grants totaling more than $46 billion in 2008.

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. Such foundations are restricted to making grants only to specific causes; others must restrict their grantmaking to a specific geographic area.

How are foundations regulated?

Private foundations and public charities are regulated by state and federal officials. Private 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 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 private foundations.