A giving circle is a pooled fund from which its donors make grants. In its simplest structure, the collaborative effort may be an informal, one-time pooling of funds to support a particular cause. A giving circle may also take on a more formal structure with a large number of donors, a tiered membership structure and its own tax-exempt status.
In an informal giving circle, the circle members ("Donors") may "pool" their contributions by making the collective decision to all donate to the same beneficiaries. Under this model, there may be no actual commingling of funds, and each Donor may simply contribute the agreed upon amount directly to the beneficiaries.
In a giving circle organized as a nonprofit corporation with 501(c)(3) exempt status, the Donors make donations directly to the grant-making corporation. Under this model, the Donors must establish a board of directors, draft appropriate governing documents, and ensure that there are sufficient resources to carry out the management and operations of the circle.
Giving circles may also be hosted by an existing 501(c)(3) nonoprofit organization (the "Host"), such as a community foundation, and established as a donor-advised fund. Under this model, the Donors would have the ability to make recommendations with respect to the grant recipients, but the Host would have ultimate authority to make such decisions. You may refer to the blog entries covering donor-advised funds to see how this model works.
Read more about giving circles on the Giving Circles Knowledge Center, hosted by Forum of Regional Associations of Grantmakers.
For an extensive study on giving circles, check out "Giving Together: A National Scan of Giving Circles and Shared Giving," published by Forum of Regional Associations of Grantmakers.