For Jobseekers: What is a foundation?

Publication date: 
April, 2014

Foundations are just one type of nonprofit organization that make up a portion of the total nonprofit "sector" (which is composed of an estimated 1.4 million organizations and entities with nonprofit status), but they do much to fund the work of other nonprofits providing services for the common good.

A foundation is an entity that is established as a nonprofit corporation or charitable trust, with a principal purpose of making monetary awards, known as grants, to unrelated organizations, institutions, or individuals for scientific, educational, religious, or other charitable purposes. Foundations vary widely in size and scope, from large, national corporate giving programs to small, local family foundations.

The terms "grantmakers" and "foundations" can, for the most part, be used interchangeably, and grantmaking refers to the practice and process of awarding grants.

A nonprofit organization (sometimes abbreviated as "NPO," or "not-for-profit") is an organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals. There are a number of types of nonprofit organizations, including grantmaking foundations, charities, human service agencies, hospitals, universities, chambers of commerce, labor unions, trade associations, and veteran's organizations.

Listed below are definitions and related statistics for the various types of foundations.

Private Foundations
Private Foundations are nongovernmental, nonprofit organizations with funds (usually from a single source, such as an individual, family, or corporation) and programs managed by their own trustees or directors. They are established to maintain or aid social, educational, religious, or other charitable activities serving the common welfare, primarily through grantmaking. U.S. private foundations are tax-exempt under Section 501(c)(3) of the Internal Revenue Code.

Because of their narrow base of support, private foundations are subject to federal laws and regulations intended to ensure that they serve the public good. These rules include, among other things, a minimum annual distribution requirement, an excise tax on investment income, limits on the proportion of a for-profit enterprise they may own, and restrictions on grantmaking for certain kinds of recipients and activities.

The different types of private foundations include:

  • Independent (Private) Foundations: Independent foundations are usually founded by one individual, often by bequest. The members from the founding family, if any, represent a minority of the board and do not control the board. Many large independent foundations are no longer governed by members of the original donor’s family but are run by boards made up of community, business, and academic leaders. Independent foundations are occasionally termed "non-operating" because they do not run their own programs. Examples include The Rockefeller Foundation and The Ford Foundation.
    Number of Family/Independent Foundations: 8,314
    New York City Total Assets: $92,666 Million
  • Family Foundations: A family foundation is one whose funds are derived from members of a single family. Family members represent the majority of the board and control the board. Trustees usually serve locally, in their communities. An example is The Cricket Island Foundation. Although the IRS does not distinguish “family foundations” from the broader “private foundation” category, the term is widely used informally within the philanthropic sector.
    Number of Family/Independent Foundations: 8,314
    New York City Total Assets: $92,666 Million
  • Operating Foundations: Operating foundations are private foundations that run their own charitable programs and services rather than make grants. Examples include The Century Foundation and Casey Family Programs.
    Number of Operating Foundations: 584
    New York City Total Assets: $4,966 Million

Corporate Giving
A Corporate (company-sponsored) Foundation is a private foundation that derives its grantmaking funds primarily from the contributions of a profit-making business. The company-sponsored foundation often maintains close ties with the donor company, but it is a separate, legal organization, sometimes with its own endowment, and is subject to the same rules and regulations as other private foundations. Examples include the New York Life Foundation and the American Express Foundation.

There are also Corporate Giving Programs, which are grantmaking programs established and administered within a profit-making company. Corporate giving programs do not have a separate endowment; their expense is planned as part of the company’s annual budgeting process and usually is funded with pre-tax income. Examples of companies with corporate giving programs include American Express and Time Warner (through their Office of Corporate Responsibility).

Number of Corporate Foundations/Corporate Giving Programs: 227
New York City Total Assets: $2,710 Million

Community Foundations
A Community Foundation is a tax-exempt public charity organized and operated for the long-term benefit of a defined geographic area. Community foundations raise their funds from the public; donor-advised funds are among the most common ways community foundations raise public funds.

An individual or family opens a donor-advised fund with an initial contribution but may continue to put money into the fund over time. The donor can take a tax deduction for all monies put into the fund. The funds belong to the community foundation, which has final authority on how they are used. But, as the terminology suggests, the donor can advise the foundation on when and to what organizations to make grants from the donor’s fund.

In practice, most community foundations make grants from advised funds only when the donor requests, so long as the recipient organization meets the foundation’s overall requirements. Many families and individual donors choose to open donor-advised funds in lieu (or anticipation) of opening their own foundation. Examples of community foundations include The New York Community Trust and the Brooklyn Community Foundation.

Number of Private/Public Foundations: 19
New York City Total Assets: $2,723 Million

Public Foundations
Although Public Foundations may provide direct charitable services to the public as other nonprofits do, their primary focus is on grantmaking. Foundations in this category encompass a range of grantmakers that raise and dispense funds around a particular community of interest. Increasingly, public foundations have been established to receive funds and make grants for special populations or for specific subject areas.

Many public foundations start as a fund within a community foundation, and they often focus on a special population or area of need in their geographic area. Common funding areas include women and girls, the arts, health, the environment, social change, or any number of issues at a local, regional, national, or international level.

Some public foundations receive funding primarily from a racial/ethnic, identity-based, or religious community, but their grantmaking programs may extend beyond this particular community of interest. Examples of public foundations include the Ms. Foundation for Women and the North Star Fund.

Number of Private/Public Foundations: 19
New York City Total Assets: $2,723 Million