Legal Definitions - private foundation

A private foundation is a type of charitable organization recognized by the IRS under section 501(c)(3) of the Internal Revenue Code. Unlike public charities, which receive substantial financial support from the general public, private foundations typically derive their funding from a limited number of sources, often a single individual, family, or corporation. They are established to carry out charitable, educational, religious, scientific, or other public-benefit purposes.

Due to their concentrated funding, private foundations are subject to more stringent regulations and oversight by the IRS compared to public charities. These regulations include specific rules regarding minimum annual distributions of funds for charitable purposes, prohibitions against self-dealing (transactions benefiting foundation insiders), and limitations on business holdings.

Here are some examples to illustrate what a private foundation is:

• Example 1: The Henderson Family Charitable Trust

  Mr. and Mrs. Henderson, after accumulating significant wealth, established the "Henderson Family Charitable Trust" with an initial endowment from their personal assets. The foundation's mission is to award grants annually to local non-profit organizations focused on animal welfare and environmental conservation. The board of trustees is primarily composed of Henderson family members and a few independent experts.

  This illustrates a private foundation because its primary funding source is a single family's wealth, not broad public donations. Its charitable activities are managed by a board largely connected to its founders, fitting the definition of a privately funded and governed entity.

• Example 2: Global Innovations Corporate Foundation

  Global Innovations Inc., a large technology company, created the "Global Innovations Corporate Foundation" as a separate legal entity. The foundation is endowed and continuously funded by the corporation to support initiatives in STEM education and digital literacy in underserved communities worldwide. While the company encourages employee volunteerism, the foundation's financial resources come almost exclusively from Global Innovations Inc.

  This is a private foundation because its financial backing originates from a single corporate entity rather than a diverse base of public donors. Although it operates for public benefit, its concentrated funding source makes it subject to private foundation regulations.

• Example 3: The Clara Vance Legacy Fund

  Upon her passing, a renowned author, Clara Vance, stipulated in her will that the majority of her estate be used to establish the "Clara Vance Legacy Fund." This foundation now provides annual scholarships to aspiring writers and grants to small literary magazines, using the income generated from the initial endowment left by Ms. Vance.

  This exemplifies a private foundation because it was created and funded by a single individual's legacy. Its ongoing operations and grant-making activities are sustained by this initial, concentrated funding source, rather than ongoing public fundraising efforts.