HOW TO START A PRIVATE FOUNDATION ?

If you want to make a difference in the world in a big way, and you have
the money to do it, you might consider starting a private foundation.
Private foundations are a special type of non-profit organization that gives
money away for charitable purposes. They can have tax benefits, but also
require that you follow all the relevant laws and regulations

Steps
1.

1
Understand what a private foundation is. A private foundation is a
nongovernmental, non-profit corporation organized "exclusively for
charitable, educational, religious, scientific and literary purposes"
under Section 501(c)(3) of the IRS Code.[1] It is organized by a family,
individual or corporation to make donations (grants) to other non-
profit organizations. Here are some key characteristics of a private
foundation.
o Funding - Unlike many non-profits whose work is
supported by donations from the public, a private foundation is
funded by an investment of cash, securities and other assets from
the founder.
o Activities - Non-profits provide various types of services
for charitable or educational purposes. A private foundation's
principal activity is making grants to non-profits to support their
activities.
o Tax Status - Like other non-profits, private foundations
are exempt from income tax. They are, however, subject to a one or
two percent excise tax on income generated by investments. [2]

4
Incorporate. A private foundation must be incorporated in the state
where it will conduct its business.[3] You can hire an attorney to do
this for you, or you can do it yourself. Specific requirements will
 vary from state to state. Check with your Secretary of State's
business office to learn the exact procedure you should follow for
the state in which you live. In general, you will need to do the
following:
 Verify that your proposed foundation name is not registered to
another corporation. This can often be done with an online search.
 Draw up Articles of Incorporation, which is the legal document
that governs the management of your corporation. If you are
handling the process yourself, look for templates online for
incorporating a non-profit entity in your state.[4]
 Identify your board members. Most states require that new
corporations have at least three members serving on the board of
directors. You will name them in the Articles of Incorporation. [5]
 Pay the required filing fees.

5
Draw up a set of by-laws (optional). By-laws are an organization's
internal operating rules. They establish the rules for selecting board
members, board terms, and specify the organization's fiscal year. [6]
 Some states require non-profits to have by-laws and some do
not; check with your state's Secretary of State to be sure.
 Even if you are not required to, it's a good idea to have by-laws
as a reference document, as you will occasionally need to provide
documentation about the items covered in them.

Draw up a conflict of interest policy. The policy will handle

instances where the personal interest of a board member or office
are at odds with the best interest of the organization. A common
example of a conflict of interest is when a board member's firm is
hired to perform services for the organization. These types of
transactions are not illegal, and can be perfectly acceptable if the
decision was vetted in an objective way and truly benefits the
organization. You can find templates of conflict of interest policies
online.[7] A policy typically:
 Prohibits or limits transactions where conflict is an issue
 Requires board members to disclose potential conflicts
 Requires board members to recuse themselves from making
decisions in which they have a personal interest
 Establishes guidelines for requiring competitive bid processes
for transactions over a certain dollar amount, to ensure that
organizations are getting fair value.

7
Establish funding guidelines. Your funding guidelines will spell out
the interest areas you identified earlier, the process by which you
distribute funds, and how or whether organizations can request
grants from you. Here are some things to include:
 Selection of grantees - You can decide to give grants only to
organizations that you identify yourself, or to accept grant
proposals from charities who want funding. If you choose the latter,
you can decide whether you want to allow only proposals that you
solicit, or whether any eligible organization can apply.
 Application process - If you opt to receive applications for
funding, you'll need to decide what your process will be. What
information do you want to know about the proposed project or
organization? It can be as simple as a form or a letter mailed to your
foundation, or a very detailed proposal, according to your
preference. Whatever you decide, your guidelines should carefully
and specifically spell out what you want from applicants.
 Grant ranges - You will need to determine how large your
grants will be. This will be determined in large part by the size of
your endowment and how your investments are performing.
 Calendar - If you intend to accept proposals, you will need to
decide how often you want to review them. You can set any
schedule you like, from a rolling basis to once a year.

8
 Apply for an Employer Identification Number (EIN). An EIN is like a
social security number for a business. It will be used by government
agencies to identify your foundation. Even if you don't intend to hire
any employees, it's a good idea to have an EIN for your foundation. [8]
There is no fee to get an EIN. To apply for an EIN:
 Download and complete IRS Form SS-4, Application for
Employer Identification Number. Your EIN will be mailed to you after
your paperwork is processed.
 Call the IRS Business & Specialty Tax Line at (800) 829-4933.
A representative will take your information over the phone and issue
your EIN at the end of the call.
 Complete the Internet EIN application. At the end of the
process, you will receive your EIN.

9
Apply to the IRS. In order to receive your tax exempt status, you will
need to file the correct paperwork with the IRS. The main form you
need is Form 1023, Application for Recognition of Exemption Under
Section 501(c)(3) of the Internal Revenue Code. This form asks
questions about how your corporation is organized, what your
primary activities will be, the composition of your board of
directors, your foundation's financial information, and other details.
Be prepared to include:
 A copy of your grant making guidelines
 Copies of your organization's organizing documents (articles of
incorporation, bylaws, etc.).
 The correct filing fees. Check the IRS website to verify the
current required fees.

Community Q&A
 Question

How can I create a fund for young children who have recently lost
their mother?
Community Answer
 You need to be able to get out there and let people know about your
fund. Create a website or something to get people's attention. Add
the story of why you are creating this fund. (For websites, there are
plenty of free websites that you can use to create your own
websites like "Wix"-check it out. Really great.) Then find people who
would be willing to add to the cause. This can usually help in a
chain reaction of others helping out as well.
Not Helpful 4 Helpful 45
 Question

What major things should I focus on before starting the foundation?

Community Answer

Before starting a foundation, you'll need to define your mission and

secure funding and a team of people who will help you reach your
goals.
Not Helpful 7 Helpful 72
 Question

Are raffles authorized in a private foundation?

Community Answer

It depends on who you are planning to sell to. If it is family and

friends, then it is authorized. If strangers, then it is not such a good
idea.
Not Helpful 13 Helpful 14
 Question

Can I use fundraisers to fund a private foundation? Can I start

charity activities before I register the foundation?
Community Answer

Before you start a foundation, you must have registered your

foundation and comply according to section 501(c)(3),and also apply
for apply for (EIN) for your foundation to be known also by the
government .
Not Helpful 0 Helpful 1
 Question

How do I start a private foundation for my autistic child?

Community Answer

Register your foundation and get yourself the form 1023 for
application for Recognition of Exemption under section 501(c)(3).
Also, you must write down reasons why you want to start that
foundation.
Not Helpful 0 Helpful 1
 Question

What are the documents needed to register a private foundation?

Community Answer

You need: 1. An incorporated company; 2. All the directors profiles if

you are not alone; 3. Fill in the form 1023; 4. An application form for
the IRS.

2
Clarify why you want to set up a foundation. There are many
reasons people choose to set up a private foundation. Before you
make this step, you should think seriously about your reasons, and
what you want to accomplish. They might include:
 Tax advantages - They can be significant. As an individual, you
can donate up to 30% of your annual income to a private foundation
and receive a tax deduction.
 Controlling your philanthropic activities - Unlike other planned
giving vehicles, a private foundation allows you - the founder - to
tightly control what types of charities receive support, as well as
the management of the assets funding that support.
 Supporting a pet cause - If you have a cause that is dear to
your heart, you might want to set up your foundation to fund
charities that are working in that area.
 Creating a legacy - You might choose to name your foundation
after yourself, to carry on and associate your family name with good
works. You could also consider naming the foundation after
someone you want to honor.
 Involving your family - A private foundation can be a way to get
your family members involved in philanthropic activities. You can
name them to the board, or hire them as staff.

3
Identify your areas of interest. An important aspect of starting a
foundation is deciding what types of charitable work you want to
support. Sometimes founders know right away what they want to
support, but others need to give it some thought. While some
foundations are very general about their funding, most foundations
have specific topics, causes or geographic regions they prefer to
focus on.
 You can get as specific as you like, depending on your
interests.
 Before you decide on your causes, it's a good idea to do
research to learn about the needs in that area and the organizations
that are involved in that work.