Broadly speaking, a foundation is a nonprofit corporation or a charitable trust that makes grants to organizations, institutions, or individuals for charitable purposes such as science, education, culture, and religion. Be aware that "foundation" is not a legal term. If an organization has the word in its name, do not assume it makes grants.
Two Types of Foundations
There are two foundation types: private foundations and grantmaking public charities.
- A private foundation’s money comes from a family, an individual, or a corporation. An example of a private foundation is the Ford Foundation. Private foundations must meet an annual "payout requirement," meaning they have to give away a minimum of 5 percent of the market value of their assets. That's why when you're looking for potential funders in our databases, Foundation Maps and Foundation Directory, the private foundations you see are all active grantmakers. Using these tools can help you identify potential foundation peers who may serve as informal advisors since you can look up which foundations are giving to specific causes or regions.
- A grantmaking public charity(sometimes called a "public foundation") gets its money from many different sources, such as foundations, individuals, and government agencies. An example of a grantmaking public charity is the Save the Children Federation. Most community foundations are also grantmaking public charities. Grantmaking public charities are also included in Candid’s Foundation Maps and Foundation Directory databases.
If you are unsure whether you will be starting a public charity or a private foundation, you may want to read our article, What is the difference between a private foundation and a public charity? Another article discusses information on establishing a public charity. If you intend to raise funds from the public, rather than starting out with an endowment of your own that you will use to make grants, you will almost certainly be forming a public charity rather than a private foundation.
Resources for Starting Grantmaking Foundations
Most people who use Candid resources are grantseekers affiliated with public charities, although occasionally people approach us with an interest in setting up their own grantmaking foundation. For specific information on this topic, you might want to contact the Council on Foundations, a national nonprofit membership association of grantmaking foundations and corporate givers.
There may be a regional association of grantmakers in your part of the country that has information on starting a foundation. You can look for a more local resource through the United Philanthropy Forum website.
Alternatives to Starting Grantmaking Foundations
You may also want to explore alternatives to starting your own foundation. For example, many community foundations help individuals set up donor-advised funds to support charitable causes. A donor-advised fund allows the individual to recommend which charitable organizations should receive donations or grants from the fund, while the community foundation assists with fund administration. An article from Kiplinger, “Do Good with a Donor-Advised Fund,” provides more information. You can search for a community foundation near you using the Community Foundation Locator on the Council on Foundations' website.
To learn about other options for setting up a fund to distribute charitable donations or grants, you may wish to consult a financial advisor or attorney.
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