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FAQs About Corporate Foundations

What is a corporate foundation?
A corporate foundation is a tax-exempt, not-for-profit corporation through which a corporation organizes and channels its philanthropic giving. The assets of the corporate foundation are derived from the assets or profits of its parent corporation or individuals closely associated with the corporation. Corporate foundations usually focus on communities where the company has operations and/or on research and education in fields related to the company's business.

The Foundation Center reports that there were 2,362 corporate or company-sponsored foundations in existence in 2002 which made over $3.4 billion in grants.

How is a corporate foundation established?
A separate nonprofit foundation corporation must be established and qualified with appropriate state entities. The corporation may make an initial gift to establish the corpus of the foundation or may make an annual contribution from its income to the foundation. LKM works with the corporation’s counsel to facilitate the preparation of the documents necessary to establish the foundation and manages the details of setting up the corporate foundation. LKM provides professional on-going administration of the corporate foundation, enabling the company to outsource this function.

What are the benefits of a corporate foundation to the corporation?
A corporate foundation is a visible symbol of the company’s dedication to philanthropy and provides stability and flexibility in corporate giving. The corporation is able to insulate its giving levels from the business cycle by making larger contributions in years when earnings are higher and smaller contributions when earnings are lower. Corporate foundations help the company develop a community investment and involvement strategy that furthers both the company's social vision and its business interests. Corporate foundations can be used to boost employee morale and loyalty by establishing a corporate matching gift program through which it matches employee gifts to qualified non-profit organizations.

Who can serve on the board of directors of a corporate foundation?
Corporate foundations are usually governed by top corporate officials, including the CEO, CFO, Director of Community Affairs or Director of Marketing. The Board may include other employees of the corporation as well as community members or experts in areas of particular interest to the foundation. LKM assists the board in articulating the foundation's philanthropic purposes and giving guidelines.

What is the difference between a corporate foundation and a corporate giving program?
A corporate foundation is a wholly separate tax-exempt corporation that is legally distinct from the founding business corporation. The founding corporation bears no direct responsibility or liability for the foundation’s operating expenses, employees or actions. A corporate giving program is a grant-making and charitable giving vehicle established and administered from within the corporation, usually as part of its Community Affairs or Marketing Departments. Its operating costs are part of the corporation's overhead and it is managed by employees of the corporation. Corporate giving programs are not endowed and derive their grantmaking funds annually from a share of the company's pre-tax earnings.

Isn't operating a corporate foundation complicated?
A corporate foundation has the same management, planning and administrative needs as any other non-profit corporation. Corporate foundations must comply with specific Federal and State tax codes and reporting requirements. Evaluation and assessment is important so that the foundation can measure the impact of its giving to report to company shareholders. The knowledge necessary to operate a foundation effectively is not learned through other business experiences. The principals of LKM provide the foundation management and operations experience needed to enable the corporation to focus on its core business while having the confidence that the business of its philanthropy is being managed by philanthropic professionals.