Private Foundations
How to Start a Private Foundation
A private foundation is a 501(c)(3) organization funded by a single individual, family, or company rather than by the general public, and it typically makes grants instead of running programs directly. Private foundations file Form 990-PF annually, are subject to an excise tax on investment income, and must follow rules on self-dealing and minimum annual distributions that do not apply to public charities. The trade-off is control: founders and their families can direct the giving in a way a public charity board cannot.
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The attorneys who will handle your matter
Founding partners Breanna McCarthy and Channing Thomas work in nonprofit and tax-exempt law every day. Breanna is a member of The Florida Bar; Channing is a member of the Virginia State Bar and clerked at the North Carolina Court of Appeals and the Supreme Court of Virginia.
Your matter is handled by an admitted attorney, not an intake team and not a filing service.
Private Foundation Formation
- Nonprofit name availability search
- Articles of Incorporation prepared and filed
- IRS-compliant private foundation language
- Federal EIN (FEIN) registration
- IRS Form 1023 preparation and submission
- Advance IRS approval of scholarship and grant procedures, where applicable
- Bylaws, conflict of interest, and whistleblower templates
- Board minutes and corporate resolution templates
- Online document storage organization
- State filing fees included
- Fast onboarding, typically 2–3 days
Flat fee • state filing fees included • no surprise add-ons
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Who this is for
A private foundation gives one family or donor lasting control over their giving, in exchange for a stricter set of operating rules and an annual public filing.
One funding source, long-term intent.
- A family, individual, or company funding charitable work from its own resources
- You want to keep control of grantmaking rather than hand it to a public charity
- The assets are large enough to justify annual filings and an excise tax
- You intend to involve family members as directors over time
- You want a giving vehicle that outlasts its founder
A different vehicle will serve you better.
- You plan to fundraise from the public — see 501(c)(3) public charity
- A church or place of worship — see church formation
- The amount is modest — a donor-advised fund may cost far less to run — see talk it through
- Advocacy is the purpose — see 501(c)(4)
- An existing foundation that lost status — see reinstatement
There is no legal minimum to start one. The practical question is whether the annual overhead is proportionate to what you will give away.
How Foundation Formation Works
Discovery
We learn who is funding the foundation, who will govern it, and what it intends to support. Those three answers determine almost everything that follows.
Organizing Documents
Articles of incorporation and bylaws drafted with the private foundation provisions built in, so the governing instrument satisfies what the IRS expects to see.
EIN & Grant Procedures
Federal EIN, plus the grantmaking procedures and conflict-of-interest policy that keep distributions and family involvement on the right side of the rules.
IRS Application
We prepare the narrative, budgets, and schedules, submit Form 1023, and handle IRS correspondence through determination.
Foundation or public charity?
Both are 501(c)(3) organizations. The difference is where the support comes from and how the organization is controlled. A public charity draws support from a broad base of donors and the general public. A private foundation is typically funded by one source, an individual, a family, or a company, and often makes grants to other charitable organizations rather than running its own programs.
Because foundations are funded and controlled narrowly, the IRS applies closer oversight: an excise tax on net investment income, a minimum annual distribution requirement, and rules restricting self-dealing between the foundation and its substantial contributors. None of these are obstacles when you plan for them, but they do need to be understood before you commit.
Why founders choose a foundation
- Control. The donor and family can direct grantmaking and serve on the board.
- Longevity. A foundation can operate across generations, carrying a family's charitable intent forward.
- Flexibility in timing. Assets can be contributed now and granted out over time.
- A clear vehicle for a legacy. Naming, mission, and priorities are set by the founder.
How we help
We advise on entity choice, prepare the organizing documents and exemption application, and set up grantmaking and conflict policies so the foundation can operate confidently from year one. If a donor-advised fund or a public charity would serve your goals better, we'll tell you that too.
Why the grant procedures matter at formation
Foundations that plan to award scholarships or make grants to individuals generally need advance IRS approval of those procedures. Handled at formation, it is part of the same application. Handled later, it becomes a separate filing with its own fee and its own wait.
That is the single most common source of avoidable additional cost we see in foundation work, which is why it is included in the package above rather than sold as an add-on.
Choosing How to Form Your Nonprofit
Forming a nonprofit is two separate jobs: creating the entity under state law, and obtaining federal tax exemption from the IRS. Cheaper routes usually cover the first and leave you the second, which is the part where mistakes are expensive to undo.
| Feature | Do It Yourself | Online Filing Service | Full-Service Law Firm |
|---|---|---|---|
| Cost | Lowest upfront cost | Moderate, with add-on fees | Flat fee, agreed in writing |
| State incorporation | You prepare and file | Filed from a template | Attorney-prepared and filed |
| IRS-required language | Commonly missed | Generic boilerplate | Drafted for your purpose |
| Form 1023 or 1023-EZ | You decide and file | Often an upsell | Eligibility assessed, then filed |
| Bylaws & conflict policy | Downloaded templates | Templates, if included | Drafted for your organization |
| Board composition | No guidance | No guidance | Reviewed against IRS expectations |
| IRS follow-up questions | Handled on your own | Additional fees to assist | Responses included |
| Best for | Experienced founders | Simple, low-budget filings | Getting it right the first time |
Amending organizing documents after filing costs more than drafting them correctly, and a denied application means paying the IRS user fee again.
Private Foundation Questions
What is the difference between a private foundation and a public charity?
Both are 501(c)(3) organizations. The difference is where the money comes from. A public charity draws support from a broad base of donors and must keep meeting a public support test to stay in that category. A private foundation is typically funded by one family, individual, or company, and in exchange for that concentrated control it accepts a stricter set of operating rules.
Is there a minimum amount needed to start a private foundation?
There is no legal minimum. The practical question is different: a foundation carries annual filing obligations, an excise tax on investment income, and administrative work every year, whether it distributes $5,000 or $5 million. Below a certain size, a donor-advised fund often accomplishes the same charitable goals with far less overhead. That is a conversation worth having before you form anything.
Does a private foundation have to give away a set amount each year?
Yes. A private foundation is generally required to distribute roughly five percent of the value of its net investment assets annually for charitable purposes. Falling short triggers an excise tax, and the shortfall carries forward, so the requirement is worth building into how the foundation invests from the start.
Can family members sit on the board and be paid?
Family members commonly serve as directors, and a foundation may pay reasonable compensation for services actually performed. What the rules prohibit is self-dealing — a set of transactions between the foundation and its substantial contributors, managers, and their families that are penalized regardless of whether the terms are fair. The distinction is technical, and it is one of the main reasons foundations use counsel.
What taxes does a private foundation pay?
A foundation is exempt from income tax on its charitable activities but pays an excise tax on its net investment income each year, and files Form 990-PF annually. The 990-PF is a public document, which is worth knowing at the outset because it lists grants, assets, and compensation.
Can a private foundation become a public charity later?
It is possible in some circumstances, and the reverse happens too when a public charity fails its support test. Neither change is automatic or quick. If you expect to fundraise broadly within a few years, that is worth raising before the entity is formed rather than after.
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