How to Start a Foundation

Starting a foundation is based on general interest purposes, with a goal to serve the general public. The main purpose of a foundation is to make grants to organizations or individuals that are not related to the foundation or to conduct charitable programs. Foundations are created through endowments given by individuals, families, corporations, etc. This income can be spent as grants or they can invest the endowments and spent the amount generated from the investment. Either way, starting a foundation can enable you to engage in charity fund-raising and distribute the money through charitable activities. But the most important factor regarding a foundation is its mission. It should be dedicated to work for a general cause or to serve the public. The aim of a foundation can be the protection of human rights, protection of the environment, uplifting the poor, scientific research, etc. but not as a tool to serve the purposes of individuals related to the foundation.

Types of Foundations

Before thinking about how to start a foundation, you have to decide the type of foundation. It can be a private foundation, which does not solicit funds from the general public. Private foundations are exclusively funded by an individual or a family, a group of individuals or a corporation. Those foundation created and funded by companies are called corporate foundations. A company as a legal entity can create a foundation, which will be operated by its board of directors. Companies can start foundations with endowments and also make contributions periodically from the profits. Many corporate houses operate in-house corporate giving programs, apart from maintaining a foundation. But such programs are under the full control of the company, whereas the foundation is controlled by the laws of the Internal Revenue Service (IRS).

You can even start a public foundation, which can be funded through various sources. But the foundation has to retain these multiple source feature to continue as a public foundation. Public foundations, which are otherwise known as community foundations, can accept funds from anyone, even from other foundations. Establishing a public foundation can be beneficial to individual donors, who do not want to incur the costs of starting a foundation. Unlike private and public foundations, that can make grants, operating foundations are meant for operating charitable programs designed by them, and not for making grants.

How to Start a Foundation?

Starting a foundation is like starting any other non-profitable business, but the primary step is to determine the goal of the new organization and its sources of income. You have to decide whether the organization is going to be a permanent one or is it temporary, that lasts till the funds run out. Are you going to make grants or operate charitable programs or both. These factors play a major role in determining the various modes of its administration and the tax consequences for different scenarios. Apart from these, you have to fully understand the state nonprofit regulations, with the help of a lawyer and an accountant. The following are some guidelines regarding how to start a charity foundation.

• The process of actual formation of the foundation has to be completed as per the state law regarding the creation and operation of nonprofit organizations. You have to decide whether the organization has to set up a trust or a corporation and its governing structure. Establish the board of directors and draft bylaws regarding the board policies.
• Once the foundation is formed, you have to apply to the IRS to recognize the organization as a tax-exempt charity. It will take almost four to six months for the procedure, as the IRS decides whether the foundation is public or private, because rules regarding the governance of the organization and tax deductibility differs for both.
• The next step is to apply for the employer identification number (EIN), which can be done online too. You have to follow the state rules and file the necessary documents regarding the foundation to the state, where the organization is going to be located.
• Draft a business plan, covering all expenses and incomes, like fund raising, staff payment, etc. Start a new bank account in the name of the foundation and choose a location for the office of the foundation.

Now. I hope, you have a basic idea regarding how to start a foundation. Remember it is always better to appoint an attorney and an accountant from the initial stages itself, so that everything is done smoothly. They are professionals, who are more conversant with the state rules and IRS regulations, and can guide you to start a foundation in the right way.