Philanthropy FAQ

Philanthropy FAQ

1. What are grantmakers/foundations?
2. What do foundations do?
3. How many foundations are there?
4. What limits are there on foundation grant making?
5. How are foundations regulated?

1. What are grantmakers/foundations?
Grantmakers are people and organizations that give grants. The organizations vary in size and type from large national corporate funders, to community and public foundations serving one cause or community, to small local family foundations. Individual contributors also vary in their size of gifts and level of activity in the field of philanthropy. Each has a specific organizational structure and operates in a different manner with respect to grantseekers.

Private Foundations are the most common type of foundations. They are generally endowed, most often from a single individual or family. Private foundations are sometimes referred to as family foundations if relatives of the original donor are still active on the board of trustees or in the operation of the foundation. Grant decisions may be made by the original donor, by members of the donor’s family, by an appointed board of directors or by a bank trust officer acting on the donor’s behalf. The geographic and interest areas of these foundations are often limited by trustee decision or the will of the donor. Private foundations with no connection to the donor family are informally known as independent foundations.

Corporate Foundations are also private foundations. They are independent grantmaking organizations whose originating donor is a corporation rather than a family or individual. They may have an actual endowment, or they may receive annual funding from the corporation. A board of directors consisting of top corporate management, local corporate officers, employee committees and sometimes outside community members usually makes the grantmaking decisions. Geographical range is often limited to areas where there is a corporate presence.

Corporate Giving Programs are similar to corporate foundations, except that they are not legally foundations and therefore not required by law to grant a certain percentage of assets or publicly disclose their grantmaking activities. Many corporations run both a foundation and a giving program, coordinating the grantmaking activities of the two. A corporate grantmaking budget is usually determined by the company’s economic health and is sometimes set by a formula related to profits. Often the giving program works closely with their company’s marketing, public relations and/or human resources departments.

Community Foundations are public foundations made up of a considerable number of individual endowments managed by a single administrative body with all the funds pooled for greater investment return. As their name implies, community foundations usually have a very distinct and limited geographical area. Some of the individual funds are general purpose and discretionary; others are quite narrowly focused and may offer funds only for a scholarships or a certain group of organizations. The trustees are chosen from the public for a specific term.  The board typically has ultimate responsibility over all grant distributions, although some funds may be donor-advised and others directed to a particular agency or organization.

Public Foundations are publicly supported charitable organizations that receive much of their financial support in the form of contributions from the general public. There are many types of public foundations, including community foundations. Public foundations support a variety of interest areas with or without geographic limitations as defined in their organizing charter and/or by their governing boards.

Public Funders are government agencies or departments that re-grant funds they have received from the federal, state and local governments through a competitive process to local nonprofit service providers. Examples include: USDA Rural Development and the West Virginia Development Office.

Other Giving Vehicles
There are many other types of philanthropic entities that don’t fit into any of the aforementioned categories but make regular grants, such as giving circles (these can be formal or informal) civic organizations, such as Rotary and Junior League.

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2. What do foundations do?
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 lobbying or engaging in political activities. A small number of foundations will 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, the freedom to choose supports a diversity of operation and opinion important to our social fabric. Because private grantmakers do not need to seek election or produce a profit for shareholders, 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.

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3. How many foundations are there?

The number of active grantmaking foundations in the United States reached 61,810 in 2001. This included 55,120 independent foundations, 2,170 corporate foundations, 602 community foundations, and 3,918 operating foundations.

Grantmaking foundations held over $476 billion in assets, with grants totaling approximately $30.5 billion in 2001.

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

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5. 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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