A Posting by Gail Meltzer, CFRE
From time to time, we are asked about the advisability of creating a separate private foundation to raise funds for an existing nonprofit. I’d like to offer an example of when such a foundation was a good idea and has provided great benefit.
(Please note – I am not an attorney and this information should not be considered legal advice in any way.)
Years ago, I was the chief development officer at a Jewishly-sponsored nonprofit senior care provider. In its 40th year of operation, the organization’s leadership changed the corporate structure, establishing a nonprofit holding company as the “Corporate Member.” At the same time, four other 501(c)(3) independent entities were created, with their own governing boards and budgets, that reported to the holding company: the nursing home; the independent living community; a licensed geriatric training school; and, the Foundation, the purpose of which, according to the by-laws, was to “provide resources to enhance the quality of life for the aged … primarily through financial support of the nursing home’s system of services.”
While it always served people of all faiths, when the nursing home provider was established in 1946, the by-laws required that only those of the Jewish faith be allowed to serve on its board. Once the above-referenced 501(c)(3) organizations were established and by-laws created, that restriction on religious affiliation no longer applied.
As a result, individuals from the entire community joined the boards, bringing their unique perspectives and wisdom. That diverse group of board members have become champions for the care of and services to older people, and they’ve become long-term ambassadors for the organization. This, of course, is especially helpful for the Foundation and for fundraising.
Those individuals who join the Foundation board know that their primary purpose is relationship building and fundraising, and they bring their contacts and their own philanthropy to the table.
Through their involvement with events such as a black-tie gala and golf tournament, both of which have been ongoing for 20 successful years, they have helped brand the Foundation with a special panache, with a reinvigorated identity and a broader appeal.
Another benefit of having philanthropic funds raised, managed and allocated through the Foundation, which functions as a separate and distinct entity with its own board, minutes, by-laws, articles of incorporation, etc., is that these funds are generally considered to be protected from litigation activity that might occur with the other entities.
If you are considering the creation of such a supporting organization or foundation, let me offer some suggestions.
1. Examine the financial and “emotional” health of the parent organization, the
history of trust and collaboration between volunteer leadership and executive
staff, and their mutual commitment to the mission, vision and values of the
organization. Establishing a Foundation is not the way to heal or overcome any
troubling issues in this regard. Deal with those issues first if needed, and allow
the organization to strengthen.
2. Clearly establish the purpose of the Foundation — where its funds are primarily
to be allocated, job descriptions for board members, how the board members
are selected and elected (in the above example, the board members are
elected by the corporate member and can be removed by same, and there is
little overlap of membership among the five boards).
3. Ensure that the benefits outweigh the costs, and that the parent organization
will commit to continued involvement in friend- and fund-raising.
4. Engage legal counsel right from the beginning to assure all legal issues are
addressed, especially with regard to the purpose of the fundraising (i.e. to
support the work of the parent organization) and how Foundation board
members are elected and/or removed.
Putting a separate entity such as a foundation in place with the responsibility to raise funds for a parent organization can be a wise idea. However, you must commit to doing your due diligence to determine why and how, in order to protect the precious philanthropic assets and reputation of the organization.
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Gail Meltzer is a founding principal of the Miami-based full-service consulting firm CoreStrategies for Nonprofits, Inc. and can be reached through the website Corestrategies4nonprofits or by email at Gail Meltzer
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