In the New 20s, more and more businesses are focusing on giving back to society. Not only is revenue growth important, but so is supporting those in need. No matter the cause and no matter the recipient, it’s increasingly common to find corporations of all shapes and sizes giving money back to needy people through the use of charitable arms and foundations.
Private foundations, however, require just as careful setup and management as your major enterprise. It stands to reason that any charitable giving and work you provide will fall under the same scrutiny as your business activities — which is why it is so crucial to ensure you know what to do to set up a charitable arm prudently.
While this may seem to be a fairly frightening challenge to some business owners, consider how many successful private foundations are active in North America today! Julio Herrera Velutini, seasoned banking executive and financial director, is one such success story. Herrera Velutini, while managing the Britannia Group (established in 2009), makes time to fund investments in creative arts and emerging technology.
Examples aside, it’s important to start mapping out your ideal charitable journey.
What is a private foundation, and where do I start?
A private foundation, contrary to popular belief, is not a charitable organization outright. Rather, it is a professional extension of a business or corporation, operating on a tax-exempt and nonprofit basis. These foundations operate by making donations to, and investments in, charities and causes that align with their philanthropic missions.
To run a private foundation or charitable arm to your business, you’ll primarily need to make payments or donations to nonprofit organizations. It’s also noted that, legally, you should be granting 5% or more of any assets your foundation maintains.
The best starting point is to establish a focus for philanthropy and to start planning with a team of legal and financial experts. Such experts can help you to ensure you file the correct paperwork with the IRS, and that you keep the required records.
Beyond this, consider setting up a foundation to be much like setting up a large business. You’ll need to consider whether it is worth running the charitable arm on your own, or if it is better to hire a team. You’ll also need to take the time to set up trustees, where appropriate, and people to sit on your board.
What’s next?
Beyond the basic starting blocks of appointing board members and actually drafting a foundation plan, you’re going to need to consult your state’s legislation. It’s important to register your charitable arm with the state and to approach the IRS for tax-exempt charity status. This is crucial to ensure that any contributions you process are tax-deductible.
This stage of the process is where some people may feel a little flustered. Filing the correct paperwork with the IRS may seem scary, but it is crucial for the legal running of any private foundation. By ensuring you have the right documentation completed and filed as expected, you can effectively run your foundation as you wish.
While the tax-exempt status you’ll enjoy is a major perk for charitable activity through a private foundation, do remember that you’ll still need to pay some form of excise to the IRS if you hold any assets within your foundation. At the time of writing, this sits at a maximum of 2%.
There are alternative ways to set up a charitable wing to your business, brand, or corporation. Some CEOs choose to run charity through donor-advised foundations, which can effectively bypass the need to produce tax returns. However, many people choose private giving for the wide-reaching benefits they famously support too.
Is it worth setting up a charitable arm for my business?
When starting any kind of business — from car dealerships to online craft stores — your main focus is always likely to be on making money to keep your own enterprise afloat. However, as your revenue increases and your brand value builds, you may start to wonder if you can give back to causes that matter to you — in a way that’s both meaningful and impactful in equal measure.
Rather than making occasional one-off donations to causes, you are somewhat interested in, setting up a foundation allows you to establish a strong link between you, your brand, and a charitable need. Therefore, you’re able to guarantee a specific level of capital to causes that matter to you — with the added benefit of tax exemption, up to a point.
If there’s a charity or cause that means a lot to you, and you are looking for a cost-effective way to give money back through your business, it is worth considering setting up a private foundation. It may be a complex process initially, but in the long term, you’ll be doing great things for people who need you.
