What Is a Private Foundation?

Understanding one of the grantmaking entities a nonprofit might turn to for support.

A private foundation is a charitable organization that derives its money from, usually, a wealthy individual or one or more families or corporations. A well-known example of a private foundation is the Bill & Melinda Gates Foundation.

Governed, like public foundations, by Section 501(c)(3) of the Internal Revenue Code, private foundations must spend at least 5% of their investment assets on philanthropy each year. This includes money spent on reasonable administrative expenses, such as salaries, facilities, and travel.

Corporate Foundations

Corporate-sponsored foundations typically fall into the private foundation category. Any consumer would probably recognize the names of many corporate foundations, like the Levi Strauss Foundation, the Ford Foundation, and the Merck Company Foundation.

Some of these entities make grants that explicitly relate to their parent company’s product or philosophy. For example, the Aetna Foundation lists its first giving priority as health—a fitting choice given that its creator company, Aetna Inc., is one of America’s largest sellers of health insurance. Other corporate foundations simply try to promote the interests of the communities in which their customers live.

Corporate foundations account for just a small percentage of the foundation money granted every year. That’s because most corporate giving, rather than being channeled through foundations, is given out directly by the parent corporations. Another way of saying this is that corporations don’t grant money through foundations alone; many of them find it easier or more advantageous to give by other means.

Other Private Foundations

Rich philanthropists who fund private foundations seek to change the world to fit their visions. Some of these organizations are long-established, high-profile players in the foundation world, with names like the Andrew W. Mellon Foundation and the John D. and Catherine T. MacArthur Foundation.

A private family foundation may be primarily motivated to carry out the very personal interests of the family that founded it. Some are quite small or narrowly focused. For example, the Rauch Family Foundation supports programs and activities that enhance the daily lives of the citizens of Rock Island, Illinois, where the foundation is based. According to the organization’s website, during the Great Depression “the Rauch brothers remembered how the community, especially the American Federation of Labor Construction Workers, came to the aid of the Rauch family whose husband and father was a paraplegic” and “constructed a storefront—and the means for the family’s livelihood—onto the front of their Rock Island Home.”

Some family-based foundations are so private that you might think they want you to just go away and leave them alone. In fact, a few do want just that—as evidenced by the fact that they don’t have websites.

A World of Interest Areas

The organizational personalities of private foundations can be, and often are, as distinct and quirky as those of individual donors. But whatever their size, provenance, or temperament, most family foundations tend to focus on one major substantive interest area and two or three minor ones. This makes it hard for most groups to get in the door but relatively easy to stay inside once you cross the threshold.

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