Cost vs benefit of a foundation as a business structure
Foundations are legal structures set up by some not-for-profit organisations to raise funds, hold funds and distributing funds (following the rules of the foundation).
The advantages of a foundation are:
- Having a separate entity solely focused on fundraising can increase your organisation’s capacity to access the private sector and government funds.
- A separate board of directors will govern the foundation. The board of directors can offer the opportunity for high profile chairs and board members with the right networks to lead the fundraising efforts with vision and energy, donating significant funds themselves.
- Dedicated foundation staff with the right expertise can spend time nurturing relationships with donors.
- The foundation can provide the distinctive fundraising ‘face’ of the organisation.
The disadvantages of establishing a foundation include:
- The high cost of establishing a separate legal entity, e.g. legal fees to create a separate or independent foundation and obtain the relevant tax and charitable status.
- Some organisations do not have the capacity or specialist expertise available to create and resource a separate foundation.
- There will be ongoing obligations to fulfil in running the foundation, including reporting and regulatory requirements.
- The interaction of the foundation brand and organisation brand needs to be managed to ensure they enhance each other, rather than compete against each other.
- In the case of small-to-medium organisations, the costs of set up and maintenance are likely to outweigh the benefits.
"You’d be stupid not to try to cut your tax bill and those that don’t are stupid in business"
- Bono: U2