Congratulations on your decision to start a private grantmaking foundation! It is an exciting – and perhaps a bit daunting – task that you have chosen to undertake. We hope the resources we provide in this section of our website will make the task a bit less overwhelming as we suggest steps and resources for setting up your foundation. We stand ready to help you, hoping you will contact us with questions and become a member of OGF, joining Ohio’s strong network of grantmakers committed to increasing their knowledge, skills and effectiveness while staying up-to-date on the latest state and federal laws governing foundations.

A private foundation (known formally by the IRS as an independent foundation) is most often created by a donor family that establishes an endowment from which it makes grants, most often in perpetuity. The family maintains control of the foundation’s activities and operations, including grantmaking, and manages the assets. Sometimes the foundation begins after the sale of a business, with proceeds of the sale forming the endowment, while at other times the foundation starts with a bequest contained in a will. There are also corporate foundations that are established by a business and funded through company profits. In these cases, the company maintains control over the grantmaking and manages the assets. 

Private foundations are subject to a variety of federal rules that govern how they operate. One of these is the requirement that a private foundation annually grant out in qualifying distributions (payout) an amount equal to 5 percent of its assets. Additionally, private foundations pay an annual excise tax on investment income to the federal government.

There are a number of steps you need to take to create a legal, tax-exempt entity in Ohio. Since the federal government requires you to submit a copy of the foundation’s articles of incorporation filed with your state, it is smart to start the state process first, or at least at the same time you submit the federal process (discussed below).

Ohio law regulates the formation and operations of nonprofit organizations in two primary sections of the Ohio Revised Code:

• Section 1702 lays out requirements for all aspects of the corporation, including contents of articles of incorporation, meeting notices, voting, membership and dissolution. 
• Section 1716 lays out the definitions of charitable organizations and explains registration and reporting requirements, rules for solicitation, power of the Attorney General to enforce the law and other items.                            

Two state officials and agencies regulate Ohio foundations. Visit their websites to learn more and access the necessary forms.

• Secretary of State
• Attorney General

One of the first steps you take is deciding what to name your foundation. Many families prefer to name their foundations after the founder/s, such as the William and Dorothy O’Neill Foundation or The Nord Family Foundation. Check the Ohio Secretary of State’s business filings to see if the name you have selected name is in use already.

Next, you will need to create and then register your foundation’s articles of incorporation with the secretary of state. Some of the information required to be included in the articles are: 

• Name
• Place where principal office is located
• Purpose/s 
• Name of Statutory agent to receive notices

The secretary of state website has the articles of incorporation form you will need to complete, either online or by printing, completing and mailing in.

You need to appoint a statutory agent to receive notices on behalf of the corporation, and complete the Original Appointment of Statutory Agent form as part of filing the articles. You will also need to pay the $125 registration fee ($100 more if you want the secretary of state to expedite the review of the articles and return its certification notice). The secretary also has a Guide to Starting a Corporation in Ohio specifically for nonprofits.

Your obligations to the secretary of state do not end when you have received notice that your articles have been filed. Changes in statutory agents must be reported to the secretary of state as they occur. And, every five years, a corporation is required to file a Continued Existence of Nonprofit Corporation form (with $25 filing fee).

The Ohio Attorney General is the state’s chief charity regulator charged with enforcing the laws governing the operations of all charitable trusts, including foundations. The term charitable trust is contained in the Ohio Revised Code and does not refer to the form of the entity (e.g., corporate or trust form) but to all entities organized for charitable purposes.

Ohio law requires all charitable foundations to register with the Attorney General’s office. The registration form gathers information on the date of federal tax exemption, charity type, names and address of trustees/directors and purpose. Foundations that are required to register also must file annual financial reports with the AG in any year in which they had either gross receipts of more than $5,000 or gross assets of more than $15,000. The financial report is due on the 15th day of the fifth month following the close of the foundation’s taxable year. The fee, which must be submitted with the report, is based on the foundation’s assets and ranges from $0 to $200.

Foundations headquartered in Ohio must also annually verify to the AG that they have filed the appropriate federal information return; foundations not headquartered in Ohio are required to file complete copies of their information returns.

Handbook for Nonprofits by Ohio Attorney General

Guide for Charity Board Members
Ohio Attorney General and Ohio Grantmakers Forum

Uniform Prudent Management of Institutional Funds Act
Sections 1715.51 to 1715.59 of Ohio Revised Code

Now that you’ve learned about the state steps, let’s move on to obtaining tax exempt status at the federal level.  First, apply for an Employer Identification Number (EIN): you must have it prior to filing the Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Here’s everything you need to know about getting an EIN, on the IRS website.

Prepare and file Form 1023, the 30 page application the IRS requires. Instructions for the form, as well as answers to common questions, can be accessed on the IRS website, which has a section devoted to charities & nonprofits. If you file Form 1023 within 27 months after the end of the month in which your organization was legally formed, and the IRS approves the application, the legal date of formation will be the effective date of your exempt status.

You will also pay a User Fee when you file your Form 1023. The fee is based on gross receipts of the foundation over last four years and ranges from $400 to $850 for a single organization application. The IRS acknowledges receipt within 21 days and then sends notice of exempt status (or not, or needs more info).

Once you have received your exemption letter, you will need to file annual information returns with the IRS, Form 990-PF. It is due on the 15th day of the 5th month after the end of your fiscal year. Additionally, private foundations are subject to public disclosure of their Form 990-PF and other related documents.

Life Cycle of a Private Foundation

Now that you have registered with the state agencies and received your tax exempt status notice from the IRS, the fulfilling part of philanthropy begins! Developing the policies and practices that will guide your family’s or company’s philanthropy is the next venture. Some of the steps you’ll want to take include:

• determine how long they will serve;
• set criteria for serving and draft a document explaining their roles and responsibilities.

• The Nord Family Foundation, in the tradition of its founders, Walter and Virginia Nord, endeavors to build community through support of projects that bring opportunity to the disadvantaged, strengthen the bond of families, and improve the quality of people’s lives.
• The Saint Luke’s Foundation of Cleveland, Ohio reinvests its resources to provide leadership and support for the improvement and transformation of the health and well-being of individuals, families and communities of Greater Cleveland.
• The Nordson Corporation Foundation is dedicated to improving the quality of life in our communities by improving educational outcomes that enable individuals to become self-sufficient, active participants in the community.

Develop grant guidelines: set out the types of activities you will fund (will you give operating support? Fund only environmental causes?) as well as the geographic areas (everywhere the company has employees? where family members live or just the founder’s home community?). Decide how many times a year will the foundation make grants. Take a look at OGF’s Ohio Common Grant Forms online for use in your grantmaking.

Decide on a communications strategy:  how will the foundation communicate with potential grantees and the public – through a website? A brochure? Will the foundation have a separate office, operate within the company’s space or will grant requests be received at a trustee’s home? Who will be the contact person?

Accessing expertise: the size of the foundation’s assets often determines whether or not it will hire staff: a $50 million endowment translates to a 5% payout of $2.5 million in grants each year, which may be more than a family can manage without professional staff. Decisions about the number and kind of staff or consultants you need are driven by the mission and purpose of the foundation, as well as by the availability, interest and skills sets of family members to perform the various functions related to the day-to-day operations, including but not limited to grantmaking. Smaller foundations may function without staff, relying on trustees to make site visits to potential grantees, review proposals, etc.

Suggested documents to develop:

• There are several policies a foundation should develop early in its life, including:
• Investment and Spending Policies
• Code of regulations
• Conflict of interest Policy and Disclosure Form
• Document retention policy (required by Sarbanes-Oxley law)
• Whistlebower protection policy (required by Sarbanes-Oxley law)

Additional resources:

• More information about Ohio’s private foundations
• Glossary of Terms
• History of foundations in Ohio
• Philanthropy Basics

Get access to hundreds of sample documents and resources, as well as contact with staff specializing in private foundations, to help you manage your foundation and connect to other funders. Newly-established, small foundations (assets under $5 million) can join under the Associate Member category for a modest yearly fee.