Foundation (nonprofit organization)

Article Outline

Introduction; History; Foundations in the 20th Century; Outside the United States

Introduction

Foundation (nonprofit organization), a nonprofit organization, with funds and programs managed by its own trustees or directors, established to maintain or aid social, educational, charitable, religious, or other activities serving the common welfare. Although some governmental agencies employ the word foundation in their titles, the term is generally regarded as applying only to nongovernmental organizations. The majority of modern foundations in the United States are incorporated under a state or federal charter; others are created under trust agreements. The foundation work is carried on by its own staff or by outside organizations or individuals to whom grants of money are allocated for use in specific projects.

History

Print this section

Philanthropic endowments and institutions have been known since ancient times. The Greek philosopher Plato bequeathed valuable land to his disciples so they could maintain his Academy; similarly, the Egyptian king Ptolemy I founded and endowed the famed museum and library in Alexandria. During the Middle Ages, religious orders made endowments to promote religious and social welfare projects. In 1701 the English Anglican clergyman Thomas Bray founded the Society for the Propagation of the Gospel in Foreign Parts, which established libraries and churches in the American colonies. In 1790 the American statesman Benjamin Franklin bequeathed funds to be lent to talented young people “of good character.” The U.S. government used the bequest of the British mineralogist James Smithson to establish the Smithsonian Institution in 1846. The legacy of the Swedish inventor Alfred Nobel has been used since 1901 to honor international achievements in the fields of literature, chemistry, physics, physiology or medicine, and peace, and, since 1969, economics. Similarly, the will of the American journalist Joseph Pulitzer provides annual gifts for distinguished American contributions to journalism, literature and drama, and music.

III

Foundations in the 20th Century

Print this section

Most of the great American foundations, with endowments of millions and billions of dollars, were created in the 19th and 20th centuries. Although foundations that were legally defined as charitable were not subject to taxation after the establishment of the federal income tax in 1913 and the federal inheritance tax in 1916, the number of foundations did not greatly increase until World War II (1939-1945) and the imposition of high war-induced taxes. Before 1910 the United States had 18 foundations, only one of which had an endowment in excess of $10 million. By 1980 the number of U.S. foundations stood at 22,000, and by 2002 that number had more than doubled to over 50,000. More than one-quarter of all foundation assets are concentrated in the 25 largest foundations.

In the 1960s Congress investigated allegations that some foundations were abusing their resources. These investigations led to federal restrictions on organizations classified as private or corporate foundations. In 1969 the U.S. Congress established a 4 percent annual excise tax based on a foundation’s annual investment income. Limitations were also set on foundation ownership of businesses and on political activity. The excise tax was later changed to a two-tier system; foundations now pay either 1 or 2 percent in excise taxes depending on their annual level of giving. Under federal law, private and corporate foundations must pay out at least 5 percent of the value of their assets in the preceding year. The payout may include other expenses besides giving, such as charitable loans, program expenses, and reasonable administrative costs.

Outside the United States

Print this section

In contrast to the United States, the scope and endowments of foundations in Canada are small. The functions of the Canadian foundations, most of which were established after 1940, are similar to those of U.S. institutions.

In the United Kingdom there are about six major foundations similar in approach to those in the United States, including the Wellcome Trust, Nuffield Foundation, Wolfson Foundation, and Pilgrim Trust. Many smaller charitable trusts also exist. In Germany, foundations of some type have existed since the 13th century; today thousands of foundations exist, and they are generally funded by large business groups. In other European countries only a few foundations have been formed.

See also Philanthropy.

Windows Live® Search Results

Foundation (nonprofit organization)

Introduction

History

Foundations in the 20th Century

Outside the United States