A thoughtful commitment to charitable giving and sufficient funding are baselines for starting a nonprofit private foundation.  But there’s more needed.  Check out the following steps you should take as you move forward:

  1. Identify your reasons for starting a new organization.  Are they primarily altruistic or personal? What is it about starting and operating a private foundation that is compelling to you?
  2. Educate yourself on the requirements of what is generally involved in organizing and operating a 501(c)(3) private foundation.  Are you aware of the benefits and drawbacks of choosing one form for the private foundation over another such as a nonprofit corporation or trust?  Do you know who will govern and/or manage the private foundation and what are their duties, potential exposures to liability, and options for risk management?  Do you understand the applicable restrictions, including those against private inurement, self-dealing, and private benefit?  Do you have a sense of the costs that may be involved to effectively manage the foundation, pursue its charitable objectives, and ensure legal and reporting compliance?
  3. Determine whether the organization will be a grantmaking foundation, a private operating foundation, or a public charity (which would be subject to some very different, typically less restrictive rules).
  4. Identify the goals of the private foundation and assess whether your funding is sufficient to meet these goals.  Beneath a certain level of funding, many experts believe that a private foundation is an inefficient vehicle for furthering charitable purposes.  There is wide variation in identifying a specific minimum level of funding.  It is common to hear gift planning attorneys state $1 million ($50,000 minimum annual distribution) as a rule of thumb, but it really depends on the facts and circumstances of each particular organization.
  5. Refine the private foundation’s goals  to ensure that they are consistent with the 501(c)(3) requirements.  For example, grantmaking to individuals or taxable entities may or may not be permissible.  If such activities are being considered, know in advance the associated requirements and limitations.
  6. Based on the information gathered in steps 1 – 5, assess whether your motivations for starting a new organization and the goals of the contemplated private foundation are best addressed by (i) starting a private foundation organization, (ii) contributing to one or more charities in another organized manner (e.g., donor advised fund, giving circle), (iii) arranging for an alternative charitable gift planning vehicle (e.g., charitable remainder trust), or (iv) working with one or more existing organizations.
  7. Draft a business plan.  All of the work in the previous steps should be incorporated into this draft (which should be a live document, changing as facts and circumstances change), and it should also detail, among other things, a thoughtful SWOT analysis, marketing plan, and a 3-year budget (which you’ll need to submit to the IRS with your application for tax-exempt status).
  8. Draft the governing documents (e.g., articles of incorporation, bylaws, conflict of interest policy) with care.  Using another organization’s bylaws as a template may provide some guidance but is more often a mistake unless reviewed by an attorney.
  9. Check to see whether you must register to engage in charitable solicitations.  This is a commonly overlooked requirement.
  10. Draft the exemption application(s) with care.  Your completed Form 1023 will be a public document signed under penalty of perjury, and it may be scrutinized by the IRS more than a typical application for public charity status.  Also, remember to check on any state tax exemption requirements.

Learn more about starting a nonprofit and how we can help here.

– Gene Takagi & Emily Chan

This is Part Four of our five-part series this month on starting a nonprofit.

Part One – 10 Keys to Starting a Nonprofit – Public Charity
Part Two – Starting a Self-Sustainable Nonprofit
Part Three – Incubating a Nonprofit Social Enterprise
Part Five – Nonprofit Startups and the Value of a Nonprofit Attorney

12 Responses to “10 Keys to Starting a Nonprofit – Private Foundation”

  1. Lashonta Andrews


  2. Darlene lucero

    I’m looking into nonprofit to find families that need help with gifts for their children during Christmas time to be Santa for them. I have had people say they would donate but asking if it could be taxable. Also businesses often want a name of organization before they donate. We only want to do this during the Christmas season but want to ask for donates all year, so we can help more families the following year.

  3. Beverly Williams

    I am interested in starting a foundation in honor of my niece who transitioned on September 8 2015 from breast cancer. Since then I have participated in several events for breast cancer awareness. I feel that for me involvement with organizations that are doing things in this srea for the community and for families and survivors will give me a better understanding of this process. It will also allow me to be a advocate for this disease in helping to find a cure and bringing awareness to so many families in the process. If later I decide to move forward with my desire to establish a foundation in honor of my niece, I will be equipped with the tools needed to operate it with integrity.

    • Gene Takagi

      Beverly, it may also be worth asking yourself why it’s better for the community and for advancing the charitable purpose for you to start a foundation versus supporting and volunteering for one or more existing organizations that are engaged in the same work. “If You Want To Go Fast, Go Alone. If You Want To Go Far, Go Together”

  4. Kim miller

    I want to establish a foundation in honor of my husband who battled a heart disease for ten years.

    • Gene Takagi

      Kim, I’m sorry for your loss. Feel free to contact us directly if you’re interested in establishing a private foundation. Please be aware of the various considerations you should take into account before moving forward, including adequate funding, governance, management, administrative requirements, grantee selection, grant due diligence, effectiveness and efficiency determinations related to the grantmaking, and possible alternatives to a private foundation.

  5. Susan Ward

    Hello, I am interested in possibly starting a foundation for the disease Pure Autonomic Failure. It is very rare. I have it. I live in CA and my doctor is in AZ at the Mayo Clinic. Difficult going back and forth. The next closest doctors are at the Mayo in Minnesota & Florida and the Cleveland Clinic. The medicine, Northera, which just came out last year to help with symptoms, is 2550.00 per month. That price is after insurance has paid. I think a foundation would be helpful not only to the patient but educating family, friends and the public.

    • Gene Takagi

      Susan, feel free to contact us directly if you’re interested in starting a foundation. For many startups, the first issue is whether it will be adequately capitalized. Some professionals believe in a minimum of $1 million to $2 million in initial funding to create a private foundation that can be operated effectively and efficiently. But that may assume creation of a foundation that is endowed and expected to exist perpetually. Some foundations get funded more modestly at the start but with the expectation of future funding to advance the plans of the founders and funders. Other foundations also funded more modestly at the outset plan to spend out and dissolve in a relatively short time-frame (e.g., 10 years). Is your plan to create and fund the foundation for the benefit of others with Pure Autonomic Failure?

  6. Victorina Amunime

    Hello…… I’m a 21 year old student….. i have been battling depression, social anxiety, an assault from when i was younger….early this year (2015) i got help and i’m now able to live my life normally like i have always wanted. My friends encouraged me to start up a foundation that will not only educate people but also be an out reach to those who are battling the same of even worse conditions…..what are the most important steps in starting a nonprofitable foundation?

    • Gene Takagi

      I’m sorry to hear of your battles. The decision to start a private foundation is a big one, and many professionals believe a person should not start a private foundation without being prepared to contribute a major sum of her or his own money. Are you thinking instead of starting a public charity? I would advise doing some research and investing in a book or two on starting a nonprofit before moving forward unless you have the base knowledge and at least a few people who are going to serve as the initial board members. The most important steps in starting a private foundation: (1) have a viable business plan that includes how the foundation will be funded and why starting a foundation is preferable from a public benefit standpoint over working with existing charitable organizations; (2) recruit board members who will actively meet their fiduciary duties and contribute to the success of the foundation at furthering its mission.


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