Establishing a Corporate Foundation can improve the impact and focus of a business’s philanthropic activities. We have helped companies set up foundations which advance charitable purposes which are aligned with their business initiatives. In fact, here at Parry Field, we have set up our own charitable foundation as well.
In this article we will be going over some of the key things which we think it is important for you to know about this topic. The easiest way is of course just to have a conversation and we do that on a no charge basis, just to answer questions and work out if we could help or not.
So what is a Corporate Foundation?
- A corporate foundation is a Charities Services registered charity (typically in the form of a charitable trust) established by a business to further the business’s charitable activities. For more on charities see our legal book here
- Although the business and the foundation are separate legal entities, and there are considerations to ensure there are no conflicts of interest, they usually have close ties and the business typically provides financial support and other resources to the foundation
- The business typically benefits from an enhanced reputation from its close ties with a registered charity as well as tax-credits for its donations to the foundation. Its customers or others in its ecosystem may also provide donations to the Foundation and possibly receive tax credits for them
- An example in New Zealand would be the Vodafone Foundation
So why might you consider setting up a Foundation?
- Increases credibility of business’s charitable activities
- May increase employee engagement in business’s philanthropic efforts
- Foundation’s registration with Charities Services provides public reassurance that its activities are for public good
- May provide significant tax advantages for the business, such as:
- Business can tax-effectively fund other organisations that may not be registered charities, but are doing charitable work
- Business can use the foundation to store charitable funds during good profit years without the need to distribute it all immediately
- Foundation can make its grants repayable but the business can’t do that tax-effectively
- Drawbacks of a Corporate Foundation
- Increased burden of administration from managing two separate entities – note that they are separate – there will be conflicts if you treat them as the same.
- Risk of fracture in relationship between the foundation and the business, for the reason that they are different entities and the business does not ‘control’ the foundation.
- Business can set-up an account with a donor advised fund but this comes with fees and less legal and practical control
- Business can set-up an internal CSR division to manage philanthropic efforts, but possibly less credibility and reputational benefit
- Business can partner directly with the charities it would like to support, but less flexibility for tax-advantageous donations
- Conflict of Interests
- Although a business and its corporate foundation may work closely in practice, it is imperative that the corporate foundation have an effective strategy for managing conflict of interests. This is particularly true if the business has the right to appoint and remove the corporate foundation’s trustees
- Trustees of the corporate foundation have a legal duty to act in the best interest of their charitable trust, and Charities Services has provided some guidance on how trustees can manage conflicts of interests here
- Key Points to Consider in setting up a Corporate Foundation
- What is the charitable purpose of the foundation? Should it have a broad purpose for future flexibility? Or should it have a more narrow purpose to focus the charitable efforts?
- Legal structure of the corporate foundation – we typically see charitable trust as the legal vehicle of choice, but other options such as an incorporated society or a limited liability company are also viable alternatives, each with its own advantages and disadvantages
- Relationship between the business and the foundation, such as funding obligations, rights to appoint and remove officers/trustees and access to the business’s resources
- Terms of the licence of the business’s brand to the foundation
- Registration of the foundation with Charities Services followed by granting of tax-donee status by the IRD
- As a registered charity the foundation will need to file annual returns
- The foundation’s policies – including investment, grant distribution, conflict of interests, privacy/data protection, etc…
We know there is a lot to consider and are happy to have a conversation at no charge with you on the options.