The Benefits of Establishing a Corporate Foundation
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A corporate foundation can provide a variety of benefits, but it may not be right for every organization. Here’s what to consider.

Today’s consumers are perhaps more interested in corporate responsibility and sustainability efforts than ever before. To that end, more and more companies are striving to strengthen their charitable programs and increase the public’s recognition of their work. For some organizations, establishing a private foundation under its corporate name may be an effective way to accomplish both goals.

What Is a Corporate Foundation?

“Generally speaking, a corporate foundation is a nonprofit organization that’s established by a company for charitable purposes and operates separately from the company,” explains Marcie Braswell, SVP Head of Endowments and Foundations at Regions.

Corporate foundations typically receive the majority of their funding from the corporation itself. Some corporations donate a percentage of their profits each year to their foundation, while others look to endow the foundation. Broadly speaking, an endowment is a pool of funds that are invested to provide ongoing resources for support. In that respect, a corporate foundation may allow organizations to tackle larger philanthropic initiatives and provide more consistent support to the causes they believe in.

Why Establish a Corporate Foundation?

Ultimately, your company’s donations still go toward the causes you want to support, so what are the benefits of establishing a corporate foundation?

For one, having a corporate foundation allows a business to vary contributions each year, contributing more in years of higher profits to stretch through years when there may be priorities for other corporate expenditures.

“Imagine you have a very profitable year as a corporation, with excess dollars you would like to give to charity, but prefer to pace the use of donated funds,” says Jeffrey Winick, Senior Wealth Strategist at Regions Bank. “Contributing instead to your corporate foundation allows you to take an immediate tax deduction for the full amount and use the foundation to spread use of funds over multiple years.”

Strategic giving opportunities

Corporate foundations typically steer their giving with foundation policies that detail how they respond to requests, award grants, and otherwise operate. These are fundamental guidelines for a foundation, and they allow executives to develop a strategic plan for grantmaking that is consistent with the company’s values and strengths. “These policies also allow the company to decline donation requests that do not fall within those strategic priorities,” Braswell explains.

Foundations also open up additional giving options. “For instance, with advance approval from the IRS, a corporate foundation may be able to design a scholarship program for its employees and their families. When disaster strikes, the corporate foundation may also be able to make grants to its employees for emergency relief,” adds Braswell.

Increased visibility

Bringing all of your programs under one name may also bring increased visibility to your charitable efforts. “Customers, communities, and employees are asking for more information about corporate giving, and having a corporate foundation is another way for corporations to provide that,” says Braswell. Further, managing all programs under a single authority — with its separate finances — may help streamline measuring and reporting efforts.

Likewise, establishing a corporate foundation may also reflect positively on your brand. “If the foundation is named for the company, then that may inherently benefit the company’s image,” she adds.

And if your company’s charity work is more visible to the public, it may be more visible to your employees, as well. 

That positive impact on employees can also be enhanced through their involvement in the foundation, such as by serving on a grants committee. Having emerging leaders serve on the committee that evaluates and awards grants can be a rewarding experience that fosters the employees’ sense of engagement in the community, something that is especially crucial for employees who want to make an impact.

Additional Factors to Consider

Though establishing corporate foundations can provide valuable benefits, this may not be the right path for every organization. For instance, there are a variety of costs associated with establishing and operating a foundation. “It’s a separate legal entity, so there is a cost in creating it,” Braswell remarks. “The IRS also has reporting requirements, which have an associated cost.”

In addition to the initial legal work needed to file for nonprofit status, private foundations must also deal with unique restrictions and tax laws. For example, they must ensure that they do not engage in transactions that would violate self-dealing rules. Further, private foundations are required to distribute roughly 5 percent of their assets for charitable work each year, or they may be subject to penalties. Breaching regulations, even unintentionally, could result in excise taxes or even the loss of tax-exempt status

How to Establish a Corporate Foundation

First, you’ll need to consider the legal setup of your foundation — although this is often a straightforward choice. “Foundations are generally structured as a trust or a corporation. Most corporations operate their own foundation as a corporation rather than a trust. It’s more in line with their existing business structure to use a board of directors and advisory board to bring outside perspectives,” Winick explains.

From there, start building your team. “There are a number of external advisors who would be helpful in establishing a corporate foundation,” Braswell says.

  • An attorney can help prepare necessary documents and complete the Form 1023 exemption application. Many states have their own requirements for filling and reporting as well.
  • A tax advisor can help determine how your corporation’s taxes are affected by establishing a foundation, as well as filing the foundation’s annual informational return with the IRS.
  • And if your goal is to eventually grow an endowment fund so the foundation is self-sufficient, you’ll want to select an investment advisor partner.

Endowing the corporate foundation and investing those assets accordingly can support charitable activities in perpetuity. It allows for a more consistent level of giving, providing support for grantmaking during a company’s less profitable years. Building a reserve of charitable dollars helps create a stable foundation, which can be necessary for longer-term projects that require regular funding for several years. The business may choose to endow the foundation all at once, such as in a year when company profits are high, or over the course of several years.

To learn more about establishing an endowment fund, listen to Episode 26 of Regions Wealth Podcast, The Benefits of an Endowment: Ensuring the Longevity of Your Nonprofit.

Finding the Right Team

While you could use your company’s existing partners to meet these needs, there are benefits to working with an organization with specific foundation experience. “Organizations want to know that they are in line with what similar organizations are doing. Having a group that works with nonprofits lets us easily tell them what we are seeing in the landscape,” Braswell explains.

As a banking institution, Regions has additional advantages as a foundation management team. “The extent that we are looped in with other accounting and legal firms, as well as the knowledge of what we are doing or have done with other corporate foundations all plays to our benefit,” notes Braswell.

Corporate charity has several well-known benefits for companies, both internally and externally. And in today’s world, the pressure to demonstrate sustainability and responsibility is greater than ever. Establishing a well-run corporate foundation may be an effective way to organize, amplify, and receive recognition for your company’s charitable work.

Interested in establishing a corporate foundation? Contact Regions’ Endowments and Foundations group to explore your options.

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This information is general in nature and is not intended to be legal, tax, or financial advice. Although Regions believes this information to be accurate, it cannot ensure that it will remain up to date. Statements or opinions of individuals referenced herein are their own—not Regions'. Consult an appropriate professional concerning your specific situation and irs.gov for current tax rules. Regions, the Regions logo, and the LifeGreen bike are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.