Doing Well by Doing Good: Company-Sponsored or Corporate Foundations.

You've made it. You have a successful company that is recognized for innovative products or excellent service. Now you are thinking about your legacy. Many successful business owners look for ways to give back to the communities that support them. You contribute funds to worthy causes whenever you can and occasionally volunteer your time. Now you want to make a more significant personal impact to help change a community, highlight an issue, solve a problem. Establishing a private foundation is worth considering.

What is a Foundation?

A foundation is an organization whose primary purpose is to make monetary grants to other charitable organizations. Usually the main source or only source of income for the foundation is an endowment. The foundation is designed to receive and hold (in perpetuity or for a designated time) funds the donor wants to use to support charitable activities.

An independent foundation is the most common type of private foundation. This option is selected when there is a large endowment available or when a living donor or small group of donors is prepared to make regular annual contributions.

Company sponsored or corporate foundations are created with relatively small endowments and receive annual contributions from the parent corporation. This type of foundation has a very close affiliation with the business or corporation that funds it and is often designed to benefit the community in which the company is located. The grantmaking by company-sponsored or corporate foundations is generally in fields related to corporate activities or identified as corporate priorities such as education, health or the environment. Most company foundations are managed by the officers of the corporation who make decisions on grant recipients.

Why Start a Foundation?

Foundations are generally started out of a strong personal or corporate philosophy, a sense of altruism or social responsibility. Foundations have usually been thought of as the method wealthy individuals use to contribute money to important causes. Individuals such as John D. Rockefeller and Andrew Carnegie established foundations during the late nineteenth century as away of organizing their charitable giving. However, foundations can be a means for any business owner to invest in the charitable work that supports the communities in which they operate. Business owners can use foundations as a formal statement of their commitment to social responsibility and philanthropic causes.

Beyond personal and philosophical reasons for creating a foundation, there are some practical business reasons one might consider. Foundations provide business owners opportunities to take advantage of the tax deductions available for cash gifts to a foundation. One particular benefit is the ability to "level" from year to year the flow of contributions. By building a reserve of assets during years when the parent company or corporation has substantial earnings, a level flow of contributions to charitable organizations can be maintained during years when business earnings are low. In addition, this reserve permits corporations to reduce its taxes in good years through larger deductions and reduce its gifts to the foundation when earnings are lower.

Taking advantage of a charitable deduction and building an endowment makes creating a foundation attractive to many business owners. The ability to immediately deduct gifts to the foundation enables the corporation to contribute to or "endow" the foundation during good years, and as the eamings of that endowment increases, use those eamings to supplement the grants made possible by the corporation's annual contribution to the foundation.

Starting Your Own Foundation

Once you have decided to establish a foundation, you will need legal and accounting advice to create the appropriate corporate entity or trust, obtain the tax exempt status, determine the timing of gifts to the foundation and set up accounts and records. The first steps in starting a company sponsored or corporate foundation include:

1 Filing articles of incorporation with the Secretary of State. Your articles of incorporation should contain: a) the name of the foundation; b) the purpose of the foundation; c) name and address of the registered agent; d) names and addresses of the incorporators; e) a provision for the distribution of assets upon dissolution; and f) a method for amending the articles.

2 Creating your bylaws. Your bylaws will provide specific guidelines for day-to-day operations of the foundation. They should spell out major activities. Most foundations' bylaws provide the following: a) the number of directors and how they are elected, removed or succeeded; b) the title and umber of the officers, how they are elected and a description of their duties; c) indemnification of officers and directors to clarify that indemnification contemplated; and d) procedures for amending the bylaws.

3 Conducting an initial meeting. An initial organizational meeting should be conducted to:

a) elect directors and officers;

b) adopt bylaws;

c) adopt a corporate seal;

d) adopt a resolution to open and appropriate bank account;

e) establish a fiscal year, and f) take minutes.

These are the first important steps to establishing your company sponsored or corporate foundation.

Having a Successful Foundation

My experience with foundations has led to some insights about what makes a foundation successful. First on the list is clarity. No doubt your company has a dear corporate vision that helps to guide the priorities of the business. The foundation needs to be directed by clear vision also.

Next the foundation must have clearly established priorities. It is your money (for now). Decide specifically what you want to use for, who you want to fund (what type of entities), and how much you want to give. This will be very helpful for those who come to you for funding as well as those who are making decisions for your foundation. Clear communication of your priorities will help you achieve your vision.

Finally, get fully connected to the communities you wish to serve. Not only do communities benefit from the relationship with your foundation but the company will also. Many of your employees are probably from the community you are serving or they may be personally committed to the cause you've taken up. Find ways to let your employees get involved so that your company can be known for the personal connections it develops.

Yolanda J. Nunn, MBA, Ph.D., is president and CEO of Nunn Consulting, Inc., a Los Angeles-based firm specializing in nonprofit management for human service organizations, private foundations, corporations, religious organizations and educational institutions.