How to start a foundation (& know if it’s the right choice)

⚖️ Disclaimer: The information in this guide is for educational purposes only and is not legal, tax, or financial advice. Nonprofit laws vary by state and situation, so please consult a qualified attorney or tax professional before making decisions for your organization.

Starting a foundation often begins with a meaningful moment, such as a desire to give back, honor someone you love, or create a positive impact. But once you start researching how foundations actually work, the questions add up quickly. What type of foundation makes sense? How much does it really cost? And is this even the right path?

This foundation guide walks you through your options and breaks down what it really takes to start a foundation, so you can choose the right path and move forward with confidence. 

Key takeaways

• Foundations are a vehicle for giving 🚚 Foundations are tax-exempt organizations that primarily fund other nonprofits rather than operating programs themselves.
• Choose your foundation type 🤔 Foundations are either private or public. Private foundations are usually funded by an individual, family, or corporation, while public foundations rely on diversified funding sources. Each has different IRS requirements. 
• Set up your structure 🏗️ Decide whether to form as a nonprofit corporation or a trust. Often, private foundations choose the former for its flexibility. 
• File for tax-exempt status 📁 Apply for an EIN (Employer Identification Number), then file with the IRS to secure your tax-exempt status. 
• Create a grantmaking framework 💰 Decide how funding is awarded, what the application process will be, and what reporting you’ll require from grantees. 
• Stay compliant ✅ Maintain detailed record-keeping systems to meet IRS requirements and ensure ongoing compliance. 
• Keep operations smooth with the right tools 🧈 Streamlined platforms like Givebutter help simplify your operations with customizable giving pages, event management tools, a powerful CRM, and more. 

What is a foundation? Public vs private foundation explained

A foundation is a type of nonprofit that primarily focuses on funding other mission-aligned organizations rather than running its own programs. Many foundations are established to support a specific cause, build a family legacy, or honor the memory of a loved one.

There are two standard foundation models:

• Public foundation: Receives funding from a broad mix of sources, such as individuals, private donors, and government entities. Public foundations are typically governed by a board of directors instead of the founder. 
• Private foundation: Funded primarily by an individual, family, or corporation and usually focused on a specific cause. Private foundations are subject to more restrictive IRS rules. 

🤔 Did you know? Public foundations, private foundations, and nonprofits are all classified as 501(c)(3) charitable organizations. However, each comes with different IRS requirements. 

How to start a charitable foundation step by step

If you’re serious about building something lasting, a foundation can be a powerful way to do it—but only if the structure matches your goals. The steps below walk you through the key decisions that shape your foundation's long-term operations, encompassing funding and governance, compliance, and day-to-day management.

Let’s dive in!

1. Clarify your mission & giving intent 👐

Every foundation starts with a clear purpose. Before you think about legal forms or paperwork, define why your foundation exists and the kind of impact you want to fund. Your mission doesn’t need to be long, but it does need to be specific enough to guide grant decisions and satisfy IRS requirements.

Start by asking yourself: 

• What cause or issue do we want to support?
• Who do we want to fund, and who do we not want to fund?
• Is this about a long-term legacy, a specific moment, or a focused area of impact?

💡 Pro tip: If your primary goal is simply to give money away, without creating a new legal entity, options like donor-advised funds, fiscal sponsorship, or direct major gifts may be more straightforward and cost-effective.

2. Choose your foundation type 🤔

Next, determine how your foundation will be funded, since this decision affects everything that follows (tax rules, reporting, governance, and fundraising).

Private foundations: 

• Sometimes referred to as family foundations, a small board of family members or colleagues typically governs private foundations.
• Funded by a limited group of individuals or entities, and generally do not seek outside financial support. 
• Required to distribute at least 5% of the value of their investment assets each year (commonly known as the 5% minimum payout rule).

Public foundations (also known as public charities): 

• Governed by a board that represents public interest; at least 50% of board members must be unrelated to the founder.
• At least 33% of funding must come from individual donors, government grants, or other public charities. 
• Not subject to a minimum payout requirement, but must provide evidence of doing public good. 

💡 Pro tip: Choosing between a public or private foundation comes with significant tax and compliance implications. If you’re unsure which path to go down, it’s wise to consult a financial or legal advisor early on. 

Dive deeper

Discover which type of nonprofit is right for you →

3. Select your legal structure ⚖️

Once you’ve determined whether your trust is public or private, you’ll also need to decide whether to operate under a nonprofit corporation structure or a trust structure. Here are the core differences:

• Nonprofit corporation: Functions similarly to a for-profit corporation, with the key distinction being that it’s governed by a board and accountable to the public rather than shareholders. 
• Trust: Established when a donor transfers assets to a trustee to manage and distribute according to the terms of the trust, typically as grants. Modifying a trust agreement can be complex and often requires legal intervention. 

💡 Pro tip: Most private and family foundations choose the nonprofit corporation structure for its flexibility and ease of governance.

More to explore

Learn the difference between not-for-profit vs. nonprofit →

4. Build your board & governance structure 👥

Your board members (or trustees) play a central role in determining your foundation’s mission, approving grants, and ensuring the foundation complies with its legal and financial obligations. 

In private and family foundations, board members are often family members or trusted advisors, but fiduciary duties still apply.

As you assemble your team, consider:

• Board size and decision-making authority
• Conflicts of interest policies
• Whether you need outside expertise (legal, accounting, or investment)

💡 Pro tip: If you choose a trust structure, the individuals serving on the board are referred to as trustees. Trustees represent the beneficiaries named in the trust, while nonprofit board members represent the organization’s public interest.

Dive deeper

Learn how to write a nonprofit business plan →

5. Get your tax-exempt status & incorporate 🧾

This is where the paperwork begins. To secure tax-exempt status, you’ll first need to apply for an EIN (Employer Identification Number). 

Next, you’ll apply to the IRS for 501(c)(3) tax-exempt status—most commonly by filing Form 1023, an in-depth application that requires you to define your mission, outline governance structures, submit bylaws, and provide financial details. 

💡 Pro tip: Tax-exempt requirements vary by state. Be sure to comply with both state and federal regulations.

Learn more

Get the 501(c)(3) requirements to know before you file →

6. Design your grantmaking policies 🪙

Before you can start funding worthy causes, you’ll need a solid grant management policy in place. Take time to lay out the following: 

• Application 📝 How applications will be submitted and what information you’ll require 
• Eligibility ⭐ What types of organizations will be eligible for your funding 
• Evaluation 🔍 How applicants will be selected (e.g., committee review, selection criteria, or scoring rubric) 
• Reporting and compliance 🗂️ What data or updates funded organizations will need to provide

💡 Pro tip: Grantmaking policies aren’t a legal requirement, but they help keep your foundation on track and aligned with its mission. 

Dive deeper

Learn what to include in your nonprofit bylaws →

7. Choose your fundraising methods 💰

How you fund your foundation depends on whether it’s private or public.

• Private foundations often rely on personal contributions and investment income to fund their operations.
• Public charities may raise funds through donations, grants, events, or sponsorships.

If you plan to raise money publicly, you’ll need systems in place to accept donations, track donors, and remain compliant.

💡 Pro tip: Givebutter makes it easy to share your story and accept donations online with customizable fundraising pages, which are especially helpful for public or memorial foundations.

Learn more

Get the ultimate donation page setup guide →

8. Set up operations & technology 💻

Beyond defining your grantmaking process, you’ll need operational systems to keep your foundation running smoothly. Make sure you’ve accounted for the following: 

• Set a budget 💸 Allocate funds for grantmaking and day-to-day operations
• Define your goals 🎯 Establish SMART goals and objectives that align with your mission
• Track outcomes 📊 Monitor progress and compare results to your stated goals 
• Assign responsibilities 📋 Clarify who owns key roles and tasks
• Choose the right technology 🛠️ Platforms like Givebutter can centralize donation tracking, donor records, communication, and reporting in one place 

Dive deeper

Discover 30+ of the best nonprofit software tools →

9. Launch your foundation & share your mission 🚀

You’ve laid the legal groundwork, and now it’s time to launch your foundation and start building support. Help grant-seekers find your foundation with the steps below: 

• Craft your story 📖 Share a compelling narrative about your purpose, goals, and the impact you aim to make
• Build a website 🖱️ Highlight your mission statement, grant opportunities, and publish SEO-friendly content
• Use social media 📱 Create profiles on platforms like Facebook, Instagram, and LinkedIn to share thoughtful content tailored to your beneficiaries' interests
• Form partnerships & networks 👐 Connect with nonprofits, corporations, and your own leadership team, and ask them to help spread the word

More to explore

Create your nonprofit marketing plan and put it to work →

10. Stay compliant & measure impact 📈

Strong record-keeping is essential for maintaining transparency, accountability, and tax-exempt status. Measuring your impact also helps ensure your foundation is meeting its goals and adapting your strategy when needed. 

Create systems for keeping these documents organized: 

• Legal documents ⚖️ Rules of incorporation, charter documents, and other legal filings
• Accounting records 📒 Bank statements, budgets, expense reports, and investment documentation
• Grantmaking documents 💸 Grant applications, financial records, and reporting materials
• Administrative records 🖊️ Insurance policies, employment policies, contracts, and salary information

💡 Pro tip: Most foundations must file an annual IRS return (Form 990 or 990-PF) to maintain tax-exempt status.

Dive deeper

Stay compliant with a free nonprofit audit checklist →

Launch & manage your foundation with Givebutter

Starting a foundation isn’t about checking boxes. It’s about making thoughtful choices that give your mission room to grow. From structure and compliance to the systems that support your work, you now have a clear picture of what it takes to build something lasting and decide whether a foundation is the right path forward.

When you’re ready to bring that vision to life, Givebutter has everything you need to get started, including fully customizable giving pages, powerful CRM, and built-in event management tools. And with the Givebutter Guarantee, you can fundraise for free when optional donor tips are enabled, so more funds go directly to the causes you care about.

Sign up for a free Givebutter account, create your first giving page, and start sharing your mission with the people who care most about it.

FAQs about how to start a nonprofit foundation

How much money do you need to start a foundation?

Most advisors recommend investing at least several hundred thousand dollars to establish a private foundation, and often $1M–$2M or more to ensure long-term sustainability. Private foundations must cover ongoing administrative expenses and distribute at least 5% of their non‑charitable‑use assets annually, which can be difficult to maintain with a smaller balance. 

How much does it cost to start a foundation?

Basic government filing fees often range from $600–$2.5K, covering IRS exemption forms and state filings. However, many organizations spend $2K–$12K or more on legal, tax, and advisory services, especially private or family foundations with more complex rules. While free tools like Givebutter can help keep fundraising and donor management costs low, legal and compliance expenses are an unavoidable part of forming a standalone foundation.

How to start a foundation with no money?

Starting a private foundation typically requires upfront funding to cover grants and pay necessary filing and compliance costs. If you don’t have that capital yet, there are other ways to make an impact. Options like a public charity, fiscal sponsorship, or a donor-advised fund allow you to begin fundraising and support causes without the full cost and complexity associated with starting a private foundation. 

How to start a family foundation?

Most family foundations are privately funded and often governed by family members. They’re commonly set up as either a nonprofit corporation or a trust under state law. 

After organizing, you apply for 501(c)(3) status using Form 1023 and file Form 990-PF annually, while following private foundation rules like the 5% payout requirement. While some fundraise publicly, many family foundations are primarily endowment-funded.

How to start a foundation in memory of someone?

To honor someone’s legacy, you can create a private foundation with a lump-sum gift, a public charity that raises money from the community, or a simpler option, such as a donor-advised fund or named fund at a community foundation. Many families choose these alternatives because they’re faster and less costly to set up than a private foundation. 

If you form a new 501(c)(3) organization, you’ll define your mission, organize legally, apply for IRS tax-exempt status, and establish your grantmaking and outreach plan. Tools like Givebutter work well for memorial giving pages and community fundraising once the structure is in place.