A foundation is an organization that operates on a non-profit basis and provides funds for charitable purposes. Most foundations endow charities dedicated to specific causes, such as education or rehabilitation.
A foundation can be managed by a board of directors, an individual, or a family, although there are legal differences in these types of foundations.
Foundations are distinct legal entities which are usually treated as corporations under the law. They can transact business, purchase property or assets, make investments, hire employees, and can be named as defendants in lawsuits. Foundations generally receive income from capital gains on existing assets or from donations by individuals. Depending on the country and state in which the foundation is organized, the laws which apply to accounting and business transactions can vary greatly.
Generally, the laws governing foundations require that they meet several requirements, including non-profit operation and use of funds for specific charitable purposes. Taxation of foundations is based on their non-profit status, meaning that they receive tax benefits under most countries’ laws. In order to qualify for tax-exempt status, foundations must follow stringent account practices and be able to prove that they do not profit from their operations.
In the United States, foundations are categorized based on who operates them–either a public group or a private family or individual. Public foundations generally have more tax benefits and can receive public funds to supplement their incomes. Private foundations are taxed more strictly and are generally ineligible for public funds. If a foundation operates as a non-profit entity, as required by law, then taxes on the income of the foundation are generally waived.
Trusts are another way to protect income from taxes, and many foundations have one or more trusts as part of their corporate structure. Trusts are often endowed by wealthy patrons who want to protect their gifts from taxes and provide for funds to be distributed to certain foundations in their wills.
In Europe, several types of foundations exist, and what qualifies as a foundation is determined by the individual country’s law. In England and Wales, the most common type of foundation–a term which has no legal meaning in those countries–is the unincorporated association, which is an agreement between individuals or groups to operate together for a common purpose. In Sweden, a foundation is an unowned entity by law. In Spain, foundations are only organized for charitable purposes. Other countries have various laws regarding their definition and treatment of foundations,
Foundations began to be organized in the early 1900’s as a way of centralizing charitable funds and avoiding tax consequences. Prior to this, most charities were small and existed as individual or collective efforts of small groups. In 1913 the American Cancer Society, the first large organization if its type, was organized, followed quickly by other major foundations, such as the March of Dimes and Relay for Life. In the 1980’s it became popular for public figures such as celebrities to endorse specific causes or fund their own charities, such as the Michael J. Fox Foundation.