Starting a Foundation?

The information provided here by the Council on Foundations begins to answer the question of how to start a foundation. It is not a substitute for obtaining advice from knowledgeable legal counsel familiar with the rules in your state who can walk you through the steps and critical decisions in establishing a foundation. Click on the links below to learn about the three general stages in forming a foundation.

  1. Pre-Formation Planning
  2. Formal Incorporation
  3. Tax Exempt Status

To find out about our own journey of learning on how best to make a positive impact on the organizations we serve, read “Rules of Engagement”. Also, we recommend reading “Birth of a Foundation” by Mario Marino, an engaged philanthropist.

If you are considering starting a foundation, or a Donor Advised Fund, feel free to contact our founder, . Our experiences and consulting will be shared without expectations of any kind. Additionally, we also recommend you go to GiveBack, an organization that helps individuals establish a charitable foundation in 3 steps.

Stage 1: Pre-formation Planning

The focus at this stage is on what the foundation hopes to accomplish — its purpose and goals — and on building the initial core of support. Before you begin the formation process, there are several questions you should consider that will help you decide which type of foundation would best suit the needs of the new organization.

  1. Why are we forming this organization?
  2. Who will donate the start-up capital and how will the foundation be sustained?
  3. Who will serve on the board, who will be the officers, and who will do the work?
  4. How much control do we want over the funds and what is the effect on taxes?

Answering questions such as the ones listed above can help you and your advisers determine which type of charitable organization or giving vehicle is right for you. For more information about starting your own foundation, please visit the Council on Foundations at www.cof.org.

Recommended Resources

  1. “Thinking about Forming a Private Foundation? Let's Run The Numbers” — Community Foundation for the Twin Tiers
  2. “Starting a Family Foundation — Council on Foundations

Stage 2: Formal Incorporation

When starting a foundation, it is essential for the donor or the donor's adviser to comprehend — at the outset — the basic legal rules that govern the formation and regulate the activities of foundations. This process is completed under state law, and the requirements vary from state to state. First, you must choose what legal form your foundation will take. Your options are generally either a trust or corporation. It should be emphasized that whatever form one chooses, it will be specifically regulated by state law, not federal law.

Each state has its own set of statutes that set out the rules for forming and running both a trust and a not-for-profit corporation. When forming any organization, you and your advisors should also research other local filing requirements, such as charitable solicitation, local business registration, sales tax exemption, and state income tax exemption. For more information about additional filing requirements, visit the website of your state and/or local government. For more information about starting your own foundation, please visit the Council on Foundations at www.cof.org.

Recommended Resource

  1. “Creating a Private Foundation: The Essential Guide for Donors and Their Advisers” — Roger D. Silk and James W. Lintott with Christine W. Silk and Andrew R. Stephens

Stage 3: Tax Exempt Status

Once the organization is formed under state law, the next step is typically for the organization's leaders to seek recognition from the IRS as a tax-exempt charity. Such recognition means that the organization will not have to pay federal tax on its income and the organization will be eligible to receive tax-deductible contributions. For most organizations, this process involves submitting IRS Form 1023, “Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.”

Once the IRS receives your Form 1023, it will determine: (1) whether your organization should be a Section 501(c)(3) organization, (2) whether it considers the organization to be a private foundation or public charity, and (3) if it qualifies as a public charity, what legal form of public charity your organization will be. For more information about starting your own foundation, please visit the Council on Foundations at www.cof.org.

Recommended Resources

  1. IRS Website
  2. Publication 526 - Charitable Contributions — IRS