It is increasingly acknowledged that some form of philanthropy and corporate social responsibility is a necessary component of modern corporate activity. As well as being for the good of the broader community, such activity can benefit the company itself by increasing good will and reputation, improving employee engagement and building client / customer loyalty.
When considering avenues for increased philanthropy and corporate social responsibility it is important to remember that company directors need to comply with their directors duties. A decision relating to the giving of philanthropy must:
One method often utilised by companies to facilitate or increase their level of philanthropy and corporate social responsibility is the establishment of what is commonly referred to as a corporate foundation.
A corporate foundation is a separately identifiable fund established by a commercial for-profit company or business through which the company can direct money, property and other benefits towards community, social and/or environmental outcomes.
A corporate foundation can take one of a number of forms, each with its advantages and disadvantages. The three main structures used are:
The decision about which form is best suited for the company will be informed by a number of considerations, including:
Regardless of the structure chosen, a company will usually have at least some degree of control over its corporate foundation and will provide it with support, for example through providing:
An internal fund is not a separate legal entity but is nevertheless usually treated as being distinct from the company. It is a lot like trading under a separate business name. The fund will commonly be distinguished from the company through specific marketing materials, the use of a separate name, a separate bank account and one or more specific web pages. There may also be one or more dedicated staff and a fund-specific telephone number.
Slightly more sophisticated funds may be guided by an advisory committee and operated in accordance with specific guidelines, policies and procedures. However, directors of the company must remember that the fund is still part of the company itself and must not mislead, intentionally or otherwise, others into thinking the fund is somehow divorced from or separate to the company.
An internal fund is attractive because:
For these reasons an internal fund can be a first step towards formalising a company's philanthropy strategy and goals.
A stand-alone foundation commonly takes the form of a company limited by guarantee or a proprietary limited company, though sometimes a trust structure is used.
While foundations of this type are commonly established for a charitable purpose, this is not always the case. That is, because of the legal definition of 'charity', it is possible for a foundation to be established as a not-for-profit without it actually pursuing a charitable purpose. For example, a stand-alone foundation established to promote sport or sporting clubs purely for the sake of or to advance sport would not be charitable at law.
It is also possible for a stand-alone foundation entity to be endorsed as a deductible gift recipient (DGR), though this is fairly uncommon. It is uncommon because a corporate foundation set up under this structure will typically want to conduct its own projects and activities and will therefore also want a broad mandate to work from DGR endorsed entities on the other hand are somewhat restricted in what they can do.
The stand-alone foundation option will involve incorporating a separate entity or, in the case of a trust, preparing a trust deed and establishing the trust.
With each of these options the company will usually be the sole member, shareholder or trustee (as the case may be) and as such will maintain a good deal of control over the foundation, including the ability to appoint and remove directors, amend the constitution or trust deed and to wind up the foundation. Similarly, the directors of the foundation almost always have a close connection with the company, for instance being drawn from the company's own directors and senior employees or those of its subsidiaries or other group companies.
We have outlined some of the advantages and disadvantages of a stand-alone foundation below.
Advantages of a stand-alone foundation include:
Disadvantages of a stand-alone foundation include:
Public ancillary funds and private ancillary funds are straightforward and relatively inexpensive to establish and can be endorsed by the ATO to receive tax deductible gifts.
These two features make ancillary funds an attractive option for many companies wishing to establish a foundation. However, ancillary funds are rather heavily regulated and cannot give money or other benefit to organisations unless such recipient organisations have DGR status, which can result in a reasonable amount of administration.
Private ancillary funds and public ancillary funds are similar in nature with the key difference being a public ancillary fund must actively seek gifts from the public and must be administered by a number of persons with a connection to the community, which the ATO call 'responsible persons'.
Both types of ancillary funds:
You can find out more about public ancillary funds and private ancillary funds on the ATO's website, from which you can also find copies of the model trust deeds.
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