Foundations 101

Foundations and endowments can be grouped together as insitutions providing support for non-profit activities.

Endowments are typically owned by non-profit institutions such as universities e.g. Harvard University Endowment and are typically viewed as very long term oriented.

Foundations are funded by gifts and investment assets and typically are setup for some specific purpose e.g. funding a scholarship

Private foundations are created by a single donor with specific goals and in the US, the tax systems makes it necessary to have minimum spending levels in order to maintain the privleged tax status. E.g. Gates & Rockefeller foundations. The spending requirement reduces the ability of the donors to use the foundation as a tax shelter.

The endowments are usually created over time via gifts and contributions. The Yale, Harvard and Princeton endowments were grown over centuries.

Foundation Type	Description	Sources of Funds	Decision Making Authority	Spending Requirement
Independent (private or family)	Independent grant making organization	From individual or family	Donor or Trustees	At least 5% of average asset value
Company sponsored	Legally independent, grant making	Annual contributions from profit making corporation or an endowment	Board controlled by sponsors executives	At least 5%
Operating foundation	Provides direct service to a non-profit (instead of grants)	Individual or family	Independent board	Must use 85% of interest and dividend income for institutions programs. In some cases 3.3%
Community foundation	Publicly supported/type of charity	Multiple, public	Board of directors	None

Of the crucial differences it is also noteworthy to mention that foundation tend to have one initial contribution and then exist on the investment income of the contributed assets. Endowments tend to have additional contributions made to them over time and dont face the requirement of a spending rate in the same way as foundations face.