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:
- if it is not-for-profit and established for charitable purposes, it is eligible to be registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC), and therefore permits the foundation to access income tax, fringe benefits tax and GST concessions and to claim cash refunds of franking credits on any dividends it receives (provided it meets the relevant requirements of the Australian Taxation Office (ATO) (including compliance with the 'in Australia' test);
- if it is endorsed as a DGR, it can receive tax deductible gifts and contributions;
- it is free to undertake its own activities and projects, as well as giving grants and donations to other organisations; and
- being a separate not-for-profit entity that by its nature is not permitted to distribute funds to its own members/shareholders can make it easier to attract donations, sponsorship and other support from employees, customer/clients, suppliers, the general public and other companies and business, despite the fact the foundation is closely aligned with and controlled by the company.
Disadvantages of a stand-alone foundation include:
- gifts to the foundation will generally not be tax deductible because corporate foundations of this nature are unlikely to be eligible for DGR endorsement (for the reasons described above);
- there is a higher degree of administration and regulatory compliance including preparation of financial accounts, the holding of directors meetings and the keeping of minutes and the requirement to report to the ACNC and/or Australian Securities and Investments Commission; and
- the process of winding up or closing down the foundation requires certain steps to be followed, which can take a number of months to complete in some circumstances.