A foundation (also referred to as a charitable foundation) is a type of nonprofit organization or charitable trust that usually provides funding and support to other charitable organizations
through grants, while also potentially participating directly in
charitable activities. Foundations encompass public charitable
foundations, like community foundations, and private foundations, which are often endowed
by an individual or family. Nevertheless, the term "foundation" might
also be adopted by organizations not primarily engaged in public
grantmaking.
Description
Legal
entities existing under the status of "foundations" have a wide
diversity of structures and purposes. Nevertheless, there are some
common structural elements.
Chart of a foundation
Legal requirements followed for establishment
Purpose of the foundation
Economic activity
Supervision and management provisions
Accountability and auditing provisions
Provisions for the amendment of the statutes or articles of incorporation
Provisions for the dissolution of the entity
Tax status of corporate and private donors
Tax status of the foundation
Some of the above must be, in most jurisdictions, expressed in the
document of establishment. Others may be provided by the supervising
authority at each particular jurisdiction.
Europe
There is no commonly accepted legal definition across Europe for a foundation. There was a proposal for a European Foundation Statute, a legal form that would create a legal definition recognised across all EU Member States. However, this proposal was withdrawn in 2015 following its failure to pass through COREPER 1.
Foundations in civil law
The term "foundation", in general, is used to describe a distinct legal entity. Foundations as legal structures (legal entities) and/or legal persons (legal personality)
may have a diversity of forms and may follow varying regulations
depending on the jurisdiction where they are created. Foundations are
often set up for charitable purposes, family patrimony and collective purposes which can include education or research.
In some jurisdictions, a foundation may acquire its legal
personality when it is entered in a public registry, while in other
countries a foundation may acquire legal personality by the mere action
of creation through a required document. Unlike a company, foundations
have no shareholders,
though they may have a board, an assembly and voting members. A
foundation may hold assets in its own name for the purposes set out in
its constitutive documents, and its administration and operation are
carried out in accordance with its statutes or articles of association
rather than fiduciary principles. The foundation has a distinct patrimony independent of its founder.
Finland
In Finland, foundations (Finnish: säätiö, Swedish: stiftelse) are regulated by the Finnish Patent and Registration Office and have the four following characteristics:
They are set up to manage property donated for a particular purpose.
This purpose is determined when establishing the foundation.
Foundations have neither owners, shareholders, nor members.
A board of trustees ensures that the foundation operates
appropriately, and is responsible for ensuring that the investments by
the foundation are secure and profitable.
Foundations are considered legal persons in Finland. The Foundations
Act in 2015 dramatically updated the laws regarding foundations.
France
There
are not many foundations in comparison to the rest of Europe. In
practice public administration requires at least €1 million necessary.
State representatives have a mandatory seat in the board.
Germany
German regulations allow the creation of any foundation for public or private purposes in keeping with the concept of a gemeinwohlkonforme Allzweckstiftung
("general-purpose foundation compatible with the common good"). A
foundation should not have commercial activities as its main purpose,
but they arre permitted if they serve the main purpose of the
foundation. There is no minimum starting capital, although in practice
at least €50,000 is considered necessary.
A German foundation can either be charitable or serve a private
interest. Charitable foundations enjoy tax exemptions. If they engage in
commercial activities, only the commercially active part of the entity
is taxed. A family foundation serving private interests is taxed like
any other legal entity. There is no central register for German
foundations.
Only charitable foundations are subject to supervision by state
authorities. Family foundations are not supervised after establishment.
All forms of foundations can be dissolved, however, if they pursue
anti-constitutional aims. Foundations are supervised by local
authorities within each state (Bundesland) because each state has exclusive legislative power over the laws governing foundations.
In contrast to many other countries, German law allows a
tax-sheltered charitable foundation to distribute up to one-third of its
profit to the founder and his next of kin, if they are needy, or to
maintain the founder's grave. These benefits are subject to taxation.
As of 2008, there are about 15,000 foundations in Germany, about
85% of them charitable foundations. More than 250 charitable German
foundations have existed for more than 500 years; the oldest dates back
to 1509. There are also large German corporations owned by foundations,
including Bertelsmann, Bosch, Carl Zeiss AG and Lidl. Foundations are the main providers of private scholarships to German students.
Italy
In
Italy, a foundation is a private non-profit and autonomous
organization, its assets must be dedicated to a purpose established by
the founder. The founder cannot receive any benefits from the foundation
or have reverted the initial assets. The private foundations or civil
code foundations are under the section about non commercial entities of
the first book of the Civil Code of Law
of 1942. Article 16 CC establishes that the foundation's statutes must
contain its name, purpose, assets, domicile, administrative organs and
regulations, and how the grants will be distributed. The founder must
write a declaration of intention including a purpose and endow assets
for such purpose. This document can be in the form of a notarized deed
or a will. To obtain legal personality, the foundation must enroll in
the legal register of each prefettura
(local authority) or some cases the regional authority. There are
several nuances in requirements according to each foundation's purpose
and area of activity.
A foundation (Fundação) in Portugal is regulated by Law 150/2015,
with the exception of religious foundations, which are regulated by the
Religious Freedom Law. Foundations may be private, wholly public
(created and managed exclusively by public bodies), or public but with
private management (created by public entities and optionally also
private entities, but whose management is dominated by private
entities). Foundations may only be operational after being recognized by
the Prime Minister of Portugal.
Foundations must designate and pursue at least one of twenty-five
public benefit goals defined by law. They must also have enough assets
to pursue those goals. They may not benefit the founders or any other
restricted group, but the general public.
Portuguese foundations may voluntarily associate themselves via the Portuguese Foundation Centre (CPF – Centro Português de Fundações), that was founded in 1993 by the Eng. António de Almeida Foundation, the Calouste Gulbenkian Foundation and the Oriente Foundation.
Spain
Foundations
in Spain are organizations founded with the purpose of not seeking
profit and serving the general needs of the public. Such foundations
may be founded by private individuals or by the public. These
foundations have an independent legal personality separate from their
founders. Foundations serve the general needs of the public with a
patrimony that funds public services and may not be distributed to the
founders' benefit.
Sweden
A foundation in Sweden (Swedish: stiftelse)
is a legal entity without an owner. It is formed by a letter of
donation from a founder donating funds or assets to be administered for a
specific purpose. When the purpose is for the public benefit, a
foundation may enjoy favorable tax treatment. A foundation may have
diverse purposes, including but not limited to public benefit,
humanitarian or cultural purposes, religious, collective, familiar, or
the simple passive administration of funds. Normally, the supervision of
a foundation is done by the county government where the foundation has
its domicile, however, large foundations must be registered by the
county administrative board (CAB), which must also supervise the
administration of the foundation. The main legal instruments governing
foundations in Sweden are the Foundation Act (1994:1220) and the
Regulation for Foundations (1995:1280).
Switzerland
A foundation needs to be registered with the company register.
Under Canadian law, registered charities may be designated as charitable organizations, public foundations, or private
foundations. The designation depends on factors such as the charity's
structure, funding sources, and mode of operation. Charities receive
notification of their designation from the Canada Revenue Agency (CRA)
upon registration. A charity with only one director or trustee is
automatically designated as a private foundation. To be designated as a
charitable organization or public foundation, more than half of the
directors, trustees, or officials must be at arm's length. The CRA
applies specific criteria to determine the designation, including the
charity's purposes, activities, income allocation, and relationships
with officials and donors.
Ireland
The
law does not prescribe any particular form for a foundation in Ireland.
Most commonly, foundations are companies limited by guarantees or
trusts. A foundation can obtain a charity registration number from the
Revenue Commissioners for obtaining tax relief as far as they can be
considered under the law on charity, however, charitable status does not
exist in Ireland. The definition usually applied is that from the
Pemsel Case of English jurisprudence (1891) and the Irish Income Tax Act
1967.
Trusts have no legal personality and companies acquire their legal
status through the Company law and the required documents of
incorporation. Foundations are not required to register with any public
authority.
United Kingdom
In the UK, the word "foundation" is sometimes used in the title of a charity, as in the British Heart Foundation and the Fairtrade Foundation. Despite this, the term is not generally used in English law, and (unlike in civil law systems) the term has no precise meaning. Instead, the concept of charitable trust is in use (for example, the Wellcome Trust).
The States of Jersey
are considering introducing civil law type foundations into its law. A
consultation paper presenting a general discussion on foundations was
brought forth to the Jersey government concerning this possibility. It
was adopted by the states of Jersey on 22 October 2008 through the
Foundations (Jersey) Law 200.
In the United States, many philanthropic and charitable organizations (such as the Bill & Melinda Gates Foundation)
are considered to be foundations. However, the Internal Revenue Code
distinguishes between private foundations (usually endowed by an
individual, family, or corporation) and public charities (community foundations
or other nonprofit groups that raise money from the general public).
While they offer donors more control over their charitable giving,
private foundations have more restrictions and fewer tax benefits than
public charities.
International networks
At an international level there are a series of networks and associations of foundations, among them Council on Foundations, EFC (European Foundation Centre), WINGS (Worldwide Initiatives for Grantmaker Support). Those organization also have a role in supporting research on foundations.
The legal definition of a charitable organization (and of
charity) varies between countries and in some instances regions of the
country. The regulation,
the tax treatment, and the way in which charity law affects charitable
organizations also vary. Charitable organizations may not use any of
their funds to profit individual persons or entities.
However, some charitable organizations have come under scrutiny for
spending a disproportionate amount of their income to pay the salaries
of their leadership.
The second-hand shop of UFF (U-landshjälp från Folk till Folk i Finland), a non-profit and non-governmental humanitarian foundation, in Jyväskylä, Finland
Financial figures (e.g. tax refunds, revenue from fundraising,
revenue from the sale of goods and services or revenue from investment,
and funds held in reserve) are indicators to assess the financial
sustainability of a charity, especially to charity evaluators. This information can impact on a charity's reputation with donors and societies, and thus the charity's financial gains.
Charitable organizations often depend partly on donations from
businesses. Such donations to charitable organizations represent a major
form of corporate philanthropy.
To meet the exempt organizational test requirements, a charity has to be exclusively organized and operated, and to receive and pass the exemption test, a charitable organization must follow the public interest and all exempt income should be for the public interest. For example, in many countries of the Commonwealth, charitable organizations must demonstrate that they provide a public benefit.
History
Early systems
Until the mid-18th century, charity was mainly distributed through religious structures (such as the English Poor Laws of 1601), almshouses,
and bequests from the rich. Christianity, Judaism, and Islam
incorporated significant charitable elements from their very beginnings, and dāna
(alms-giving) has a long tradition in Hinduism, Jainism, Buddhism, and
Sikhism. Charities provided education, health, housing, and even
prisons. Almshouses were established throughout Europe in the Early Middle Ages to provide a place of residence for the poor, old, and distressed people; King Athelstan of England (reigned 924–939) founded the first recorded almshouse in York in the 10th century.
During the Enlightenment era, charitable and philanthropic activity among voluntary associations and affluent benefactors became a widespread cultural practice. Societies, gentlemen's clubs, and mutual associations began to flourish in England,
with the upper classes increasingly adopting a philanthropic attitude
toward the disadvantaged. In England, this new social activism led to
the establishment of charitable organizations, which proliferated from
the middle of the 18th century.
This emerging upper-class trend for benevolence resulted in the
incorporation of the first charitable organizations. Appalled by the
number of abandoned children living on the streets of London, CaptainThomas Coram set up the Foundling Hospital in 1741 to care for these unwanted orphans in Lamb's Conduit Fields, Bloomsbury. This institution, the world's first of its kind, served as the precedent for incorporated associational charities in general.
Painting by Antoine-Alexandre Morel (1765–1829) depicting charity during the Enlightenment era
Another notable philanthropist of the Enlightenment era, Jonas Hanway, established The Marine Society in 1756 as the first seafarers' charity, aiming to aid the recruitment of men into the navy. By 1763, the Society had enlisted over 10,000 men, and an Act of Parliament incorporated it in 1772. Hanway also played a key role in founding the Magdalen Hospital to rehabilitate prostitutes.
These organizations were funded by subscriptions and operated as
voluntary associations. They raised public awareness about their
activities through the emerging popular press and generally enjoyed high
social regard. Some charities received state recognition in the form of
a royal charter.
Charities also began to take on campaigning roles, championing
causes and lobbying the government for legislative changes. This
included organized campaigns against the mistreatment of animals and
children, as well as the successful campaign in the early 19th century
to end the slave trade throughout the British Empire and its extensive sphere of influence. (However, this process was quite lengthy, concluding when slavery in Saudi Arabia was abolished slavery in 1962.)
The Enlightenment era also witnessed a growing philosophical
debate between those advocating for state intervention and those
believing that private charities should provide welfare. The political economist, Reverend Thomas Malthus (1766–1834), criticized poor relief for paupers on economic and moral grounds and proposed leaving charity entirely to the private sector. His views became highly influential and informed the Victorianlaissez-faire attitude toward state intervention for the poor.
Growth during the 19th century
During the 19th century, a profusion of charitable organizations emerged to alleviate the awful conditions of the working class in the slums. The Labourer's Friend Society, chaired by Lord Shaftesbury
in the United Kingdom in 1830, aimed to improve working-class
conditions. It promoted, for example, the allotment of land to laborers
for "cottage husbandry", which later became the allotment movement. In 1844, it became the first Model Dwellings Company –
one of a group of organizations that sought to improve the housing
conditions of the working classes by building new homes for them, all
the while receiving a competitive rate of return on any investment. This
was one of the first housing associations, a philanthropic endeavor that flourished in the second half of the nineteenth century, brought about by the growth of the middle class. Later associations included the Peabody Trust (originating in 1862) and the Guinness Trust (founded in 1890). The principle of philanthropic intention with capitalist return was given the label "five percent philanthropy".
There was strong growth in municipal charities. The Brougham Commission led to the Municipal Corporations Act 1835, which reorganized multiple local charities by incorporating them into single entities under supervision from the local government.
Charities at the time, including the Charity Organization Society
(established in 1869), tended to discriminate between the "deserving
poor", who would be provided with suitable relief, and the
"underserving" or "improvident poor", who was regarded as the cause of
their woes due to their idleness. Charities tended to oppose the
provision of welfare by the state, due to the perceived demoralizing effect.
Although minimal state involvement was the dominant philosophy of the
period, there was still significant government involvement in the form
of statutory regulation and even limited funding.
Philanthropy became a very fashionable activity among the expanding middle classes in Britain and America. Octavia Hill (1838–1912) and John Ruskin (1819–1900) were important forces behind the development of social housing, and Andrew Carnegie (1835–1919) exemplified the large-scale philanthropy of the newly rich in industrialized America. In Gospel of Wealth (1889), Carnegie wrote about the responsibilities of great wealth and the importance of social justice. He established public libraries throughout English-speaking countries and contributed large sums to schools and universities. A little over ten years after his retirement, Carnegie had given away over 90% of his fortune.
Towards the end of the 19th century, with the advent of the New Liberalism and the innovative work of Charles Booth in documenting working-class life in London, attitudes towards poverty began to change. This led to the first social liberalwelfare reforms, including the provision of old age pensions and free school-meals.
With the advent of the Internet, charitable organizations established a presence on online social media platforms and began initiatives such as cyber-based humanitarian crowdfunding, exemplified by platforms like GoFundMe.
By jurisdiction
Australia
The definition of charity in Australia is derived from English common law, originally from the Charitable Uses Act 1601,
and then through several centuries of case law based upon it. In 2002,
the federal government initiated an inquiry into the definition of a
charity. The inquiry proposed a statutory definition of a charity, based
on the principles developed through case law. This led to the Charities Bill 2003,
which included limitations on the involvement of charities in political
campaigning, an unwelcome departure from the case law as perceived by
many charities. The government appointed a Board of Taxation inquiry to
consult with charities on the bill. However, due to widespread criticism
from charities, the government abandoned the bill.
Subsequently, the government introduced the Extension of Charitable Purpose Act 2004.
This act did not attempt to codify the definition of a charitable
purpose but rather aimed to clarify that certain purposes were
charitable, resolving legal doubts surrounding their charitable status.
Among these purposes were childcare, self-help groups, and
closed/contemplative religious orders.
To publicly raise funds, a charity in Australia must register in
each Australian jurisdiction in which it intends to raise funds. For
example, in Queensland, charities must register with the Queensland Office of Fair Trading.[22]
Additionally, any charity fundraising online must obtain approval from
every Australian jurisdiction that mandates such approval. Currently,
these jurisdictions include New South Wales, Queensland, Victoria,
Tasmania, Western Australia, and the Australian Capital Territory.
Numerous Australian charities have appealed to federal, state, and
territory governments to establish uniform legislation enabling
charities registered in one state or territory to raise funds in all
other Australian jurisdictions.
A Public Benevolent Institution (PBI) is a specific type
of charity with its primary purpose being to alleviate suffering in the
community, whether due to poverty, sickness, or disability. Examples of
institutions that might qualify include hospices, providers of
subsidized housing, and certain not-for-profit aged care services.
Charities in Canada need to be registered with the Charities Directorate of the Canada Revenue Agency. According to the Canada Revenue Agency:
A registered charity is an organization established and operated for
charitable purposes. It must devote its resources to charitable
activities. The charity must be a resident in Canada and cannot use its
income to benefit its members.
A charity also has to meet a public benefit test. To qualify under this
test, an organization must show that:
its activities and purposes provide a tangible benefit to the public.
those eligible for benefits are either the public as a whole or a
significant section of it. They should not be a restricted group or one
where members share a private connection, such as social clubs or
professional associations with specific memberships.
the charity's activities must be legal and must not be contrary to public policy.
To register as a charity, the organization has to be either incorporated
or governed by a legal document called a trust or a constitution. This
document has to explain the organization's purposes and structure.
France
Most French charities are registered under the statute of loi d'association de 1901, a type of legal entity for non-profit NGOs. This statute is extremely common in France
for any type of group that wants to be institutionalized (sports clubs,
book clubs, support groups...), as it is very easy to set up and
requires very little documentation. However, for an organization under
the statute of loi 1901 to be considered a charity, it has to file with the authorities to come under the label of "association d'utilité publique", which means "NGO acting for the public interest". This label gives the NGO some tax exemptions.
Hungary
In Hungary, charitable organizations are referred to as "public-benefit organizations" (Hungarian: közhasznú szervezet). The term was introduced on 1 January 1997 through the Act on Public Benefit Organizations.
India
Under
Indian law, legal entities such as charitable organizations,
corporations, and managing bodies have been given the status of "legal persons" with legal rights, such as the right to sue and be sued, and the right to own and transfer property. Indian charitable organizations with this status include Sir Ratan Tata Trust.
Ireland
In Ireland, the Charities Act (2009) legislated the establishment of a "Charities Regulatory Authority", and the Charities Regulator was subsequently created via a ministerial order in 2014.
This was the first legal framework for charity registration in Ireland.
The Charities Regulator maintains a database of organizations that have
been granted charitable tax exemption—a list previously maintained by
the Revenue Commissioners. Such organizations would have a CHY number from the Revenue Commissioners, a CRO number from the Companies Registration Office, and a charity number from the Charities Regulator.
The Irish Nonprofits Database was created by Irish Nonprofits
Knowledge Exchange (INKEx) to serve as a repository for regulatory and
voluntarily disclosed information about Irish public benefit nonprofits.
Nigeria
Charitable organizations in Nigeria are registerable under "Part C" of the Companies and Allied Matters Act, 2020. Under the law, the Corporate Affairs Commission, Nigeria,
being the official Nigerian Corporate Registry, is empowered to
maintain and regulate the formation, operation, and dissolution of
charitable organizations in Nigeria.[33] Charitable organizations in Nigeria are exempted under §25(c) of the Companies Income Tax Act (CITA) Cap. C21 LFN 2004 (as amended), which exempts from income tax corporate organizations engaged wholly in ecclesiastical, charitable, or educational activities. Similarly, §3 of the Value Added Tax Act (VATA) Cap. V1 LFN 2004 (as amended),
and the 1st Schedule to the VATA on exempted Goods and Services goods
zero-rates goods and services purchased by any ecclesiastical,
charitable, or educational institutions in furtherance of their
charitable mandates.
Poland
A public benefit organization (Polish: organizacja pożytku publicznego, often abbreviated as OPP) is a term used in Polish law. It was introduced on 1 January 2004 by the statute on public good activity and volunteering. Charitable organizations of public good are allowed to receive 1.5% of income tax from individuals, making them "tax-deductible organizations". To receive such status, an organization has to be a non-governmental organization,
with political parties and trade unions not qualifying. The
organization must also be involved in specific activities related to the
public good as described by the law, and it should demonstrate
sufficient transparency in its activities, governance, and finances.
Moreover, data has shown that this evidence is pertinent and sensible.
The
legislation governing charitable activities and the process of
obtaining charitable organization status is regulated by Ukraine's Civil
Code and the Law of Ukraine on Charitable Activities and Charitable
Organizations.
According to Ukrainian law, there are three forms of charitable organizations:
A "charitable society" is a charitable organization created by
at least two founders and operates based on the charter or statute.
A "charitable institution" is a type of charitable trust that acts
based on the constituent or founding act. This charitable organization's
founding act defines the assets that one or several founders transfer
to achieve the goals of charitable activity, along with any income from
such assets. A constituent act of a charitable institution may be
contained in a will or testament. The founder or founders of the
charitable institution do not participate in the management of such a
charitable organization.
A "charitable fund" or "charitable foundation" is a charitable
organization that operates based on the charter, has participants or
members, and is managed by them. Participants or members are not obliged
to transfer any assets to such an organization to achieve the goals of
charitable activity. A charitable foundation can be created by one or
several founders. The assets of a charitable fund can be formed by
participants and/or other benefactors.
The Ministry of Justice of Ukraine is the main registration authority for charitable organization registration and constitution. Individuals and legal entities, except for public authorities and local governments,
can be the founders of charitable organizations. Charitable societies
and charitable foundations may have, in addition to founders, other
participants who have joined them as prescribed by the charters of such
charitable associations or charitable foundations. Aliens
(non-Ukrainian citizens and legal entities, corporations, or
non-governmental organizations) can be the founders and members of
philanthropic organizations in Ukraine.
All funds received by a charitable organization and used for
charitable purposes are exempt from taxation, but obtaining non-profit
status from the tax authority is necessary.
Legalization is required for international charitable funds to operate in Ukraine.
United Kingdom
Charity law in the UK varies among (i) England and Wales, (ii) Scotland and (iii) Northern Ireland,
but the fundamental principles are the same. Most organizations that
are charities are required to be registered with the appropriate
regulator for their jurisdiction, but significant exceptions apply so
that many organizations are bona fide charities but do not appear on a public register. The registers are maintained by the Charity Commission for England and Wales and by the Office of the Scottish Charity Regulator for Scotland. The Charity Commission for Northern Ireland
maintains a register of charities that have completed formal
registration (see below). Organizations applying must meet the specific
legal requirements summarized below, have filing requirements with their
regulator, and are subject to inspection or other forms of review. The
oldest charity in the UK is The King's School, Canterbury, established in 597 AD.
Charitable organizations, including charitable trusts, are
eligible for a complex set of reliefs and exemptions from taxation in
the UK. These include reliefs and exemptions in relation to income tax, capital gains tax, inheritance tax, stamp duty land tax, and value added tax. These tax exemptions have led to criticisms that private schools are able to use charitable status as a tax avoidance technique rather than offering a genuine charitable good.
the promotion of the efficiency of the armed forces of the Crown or
of the police, fire and rescue services or ambulance services
other purposes currently recognized as charitable and any new
charitable purposes which are similar to another charitable purpose.
A charity must also provide a public benefit.
Before the Charities Act 2006,
which introduced the definition now contained in the 2011 Act, the
definition of charity arose from a list of charitable purposes in the Charitable Uses Act 1601 (also known as the Statute of Elizabeth), which had been interpreted and expanded into a considerable body of case law. In Commissioners for Special Purposes of Income Tax v. Pemsel
(1891), Lord McNaughten identified four categories of charity which
could be extracted from the Charitable Uses Act and which were the
accepted definition of charity prior to the Charities Act 2006:
other purposes considered beneficial to the community.
Charities in England and Wales—such as Age UK, the Royal Society for the Protection of Birds (RSPB) and the Royal Society for the Prevention of Cruelty to Animals (RSPCA) – must comply with the 2011 Act regulating matters such as charity reports and accounts and fundraising.
Structures
As of 2011, there are several types of legal structures for a charity in England and Wales:
The unincorporated association is the most common form of organization within the voluntary sector in England and Wales.
This is essentially a contractual arrangement between individuals who
have agreed to come together to form an organization for a particular
purpose. An unincorporated association will normally have a constitution
or set of rules as its governing document, which will deal with matters
such as the appointment of office bearers and the rules governing
membership. The organization is not, however, a separate legal entity,
so it cannot initiate legal action, borrow money, or enter into
contracts in its own name. Its officers can be personally liable if the
charity is sued or has debts.
A trust
is essentially a relationship among three parties: the donor of some
assets, the trustees who hold the assets, and the beneficiaries (those
eligible to benefit from the charity). When the trust has charitable
purposes and is a charity, the trust is known as a charitable trust. The
governing document is the trust deed or declaration of trust, which
comes into operation once signed by all the trustees. The main
disadvantage of a trust is that, like an unincorporated association, it
lacks a separate legal entity, and the trustees must themselves own
property and enter into contracts. The trustees are also liable if the
charity is sued or incurs liability.
A company limited by guarantee is a private limited company where
members' liability is limited. A guarantee company does not have a
share capital, but instead has members who are guarantors rather than
shareholders. If the company is wound up, the members agree to pay a
nominal sum, which can be as little as £1. A company limited by
guarantee is a useful structure for a charity where trustees need
limited liability protection. Moreover, the charity has legal
personality and can enter into contracts, such as employment contracts,
in its own name.
A small number of charities are incorporated by royal charter,
a document that creates a corporation with legal personality (or, in
some cases, transforms a charity incorporated as a company into a
charity incorporated by royal charter). The charter must be approved by
the Privy Council
before receiving royal assent. While the nature of the charity will
vary depending on the clauses enacted, a royal charter generally offers a
charity the same limited liability as a company and the ability to
enter into contracts.
The Charities Act 2006 introduced a new legal form of incorporation designed specifically for charities—the charitable incorporated organization
(CIO)—with powers similar to a company but without the need to register
as a company. Becoming a CIO was only made possible in 2013, with
staggered introduction dates, with the charities with the highest
turnover eligible first.
The term foundation is not commonly used in England and Wales. Occasionally, a charity will use the word as part of its name (e.g., British Heart Foundation),
but this has no legal significance and provides no information about
the charity's work or legal structure. The organization's structure will
fall into one of the types described above.
Registration
Charitable organizations with an income of over £5,000 and subject to the law of England and Wales must register with the Charity Commission for England and Wales, unless they are an "exempt" or "excepted" charity.
For companies, the law of England and Wales will usually apply if the
company itself is registered in England and Wales. In other cases, if
the governing document doesn't specify, the law that applies will be the
one most connected with the organization.
When an organization's income doesn't exceed £5,000, it can't
register as a charity with the Charity Commission for England and Wales,
unless registered as a Charitable Incorporated Organisation, in which
case there is no minimum annual income. With the increase in the mandatory registration level to £5,000 by The Charities Act 2006,
smaller charities can rely on HMRC recognition to demonstrate their
charitable purpose and confirm their not-for-profit principles.
Churches with an annual income of less than £100,000 need not register.
Some charities, referred to as exempt charities,
aren't required to register with the Charity Commission and aren't
subject to its supervisory powers. These charities include most
universities and national museums, as well as some other educational
institutions. Other charities are excepted from the need to register but
are still subject to the supervision of the Charity Commission. The
regulations on excepted charities were changed by the Charities Act 2006. Many excepted charities are religious charities.
Northern Ireland
The Charity Commission for Northern Ireland was established in 2009
and has received the names and details of over 7,000 organizations in
Northern Ireland that have previously been granted charitable status for
tax purposes (the "deemed list"). Compulsory registration of
organizations from the deemed list began in December 2013, and it is
expected to take three to four years to complete. The new Register of Charities is publicly available on the CCNI website
and contains the details of those organizations that have so far been
confirmed by the commission to exist for charitable purposes and the
public benefit. The Commission estimates that between 5,000 and 11,500
charitable organizations need to be formally registered in total.
In the United States, a charitable organization is an organization operated for purposes that are beneficial to the public interest. There are different types of charitable organizations. Every U.S. and foreign charity that qualifies as tax-exempt under Section 501(c)(3) of the Internal Revenue Code (IRC) is considered a "private foundation" unless it demonstrates to the Internal Revenue Service
(IRS) that it falls into another category. Generally, any organization
that is not a private foundation (i.e., it qualifies as something else)
is usually a public charity as described in Section 509(a) of the IRC.
In addition, a private foundation usually derives its principal
funding from an individual, family, corporation, or some other single
source, and it is more often than not a grantmaker that does not solicit funds from the public. In contrast, a foundation
or public charity generally receives grants from individuals,
government, and private foundations. While some public charities engage
in grantmaking activities, most conduct direct service or other
tax-exempt activities. Foundations that are generally grantmakers (i.e.,
they use their endowment
to make grants to other organizations, which in turn carry out the
goals of the foundation indirectly) are usually called "grantmaker" or
"non-operating" foundations.
The requirements and procedures for forming charitable
organizations vary from state to state, as do the registration and
filing requirements for charitable organizations that conduct charitable
activities, solicit charitable contributions, or hire professional
fundraisers.
In practice, the detailed definition of a "charitable organization" is
determined by the requirements of state law where the charitable
organization operates, and the requirements for federal tax relief by
the IRS.
Resources exist to provide information, including rankings, of US charities.
Federal tax relief
Federal
tax law provides tax benefits to nonprofit organizations recognized as
exempt from federal income tax under section 501(c)(3) of the IRC. The
benefits of 501(c)(3) status include exemption from federal income tax
as well as eligibility to receive tax-deductible charitable
contributions. In 2017, there were a total of $281.86 billion in
tax-deductible donations by individuals.
To qualify for 501(c)(3) status, most organizations must apply to the IRS for such status.
Several requirements must be met for a charitable organization to
obtain 501(c)(3) status. These include the organization being organized
as a corporation, trust, or unincorporated association. The
organization's organizing document (such as the articles of
incorporation, trust documents, or articles of association) must limit
its purposes to being charitable and permanently dedicate its assets to
charitable purposes. The organization must refrain from undertaking a
number of other activities, such as participating in the political
campaigns of candidates for local, state, or federal office.
Additionally, the organization must ensure that its earnings do not
benefit any individual. Most tax-exempt organizations are required to file annual financial reports (IRS Form 990)
at the state and federal level. A tax-exempt organization's Form 990
and some other forms are required to be made available for public
scrutiny.
The types of charitable organizations that the IRS considers to be organized for the public benefit include those organized for:
Relief of the poor, the distressed, or the underprivileged
Advancement of religion
Advancement of education or science
Construction or maintenance of public buildings, monuments, or works
Lessening the burdens of government
Lessening neighborhood tensions
Elimination of prejudice and discrimination
Defense of human and civil rights secured by law
Combating community deterioration and juvenile delinquency.
A number of other organizations may also qualify for exempt status,
including those organized for religious, scientific, literary, and
educational purposes, as well as those for testing for public safety and
for fostering national or international amateur sports competition, and
for the prevention of cruelty to children or animals.
Criticism
The charity has received various criticisms, for example:
Charities sometimes give aid conditionally,
through eligibility requirements such as sobriety, piety, curfews,
participation in job training or parenting courses, cooperation with the
police, or identifying the paternity of children, charity models
enforce the concept that only those who can prove their moral worth
deserve help, motivating citizens to accept exploitative wages or
conditions to avoid being subject to the charitable system.
Charity is increasingly privatized and contracted out to the massive
nonprofit sector, where organizations compete for grants to address
social problems. Donors can protect their money from taxation by storing
it in foundations that fund their pet projects, most of which have
nothing to do with poor people.
Economist Robert Reich criticized the practice of billionaires giving some of their money to charity, calling it mostly "self-serving rubbish".Mathew Snow of American socialist magazine Jacobin
criticized charity for "creating an individualized 'culture of giving'"
instead of "challenging capitalism's institutionalized taking."
Charity fraud
Charity fraud, also known as a donation scam, is the act of using deception
to obtain money from people who believe they are donating to a charity.
Often, individuals or groups will present false information claiming to
be a charity or associated with one, and then ask potential donors for
contributions to this non-existent charity. Charity fraud
encompasses not only fictitious charities but also deceptive business
practices. These deceitful acts by businesses may involve accepting
donations without using the funds for their intended purposes or
soliciting funds under false pretenses of need.
Policy coherence for development (PCD) is an approach and policy tool for integrating the economic, social, environmental and governance dimensions of sustainable development
at all stages of domestic and international policy making. It is the
aim of PCD to make foreign relations to be as ecologically, economically
and socially coherent as possible and thereby to make international
co-operation for international development more effective.
Policy Coherence for Development Flow Chart
Commitments on achieving greater policy coherence to promote development have also been promoted by the Organisation for Economic Co-operation and Development (OECD) (which has a specific department, Policy Coherence for Development Unit) as well as in the 2011 Busan Partnership for Effective Development Cooperation, the UN Millennium Declaration and the 2010 UN Millennium Development Goals
Summit. In an era when development assistance is likely to come under
more pressure, Policy Coherence for Development (PCD) should become more
important. An example of such recognition is the target of the United
Nations Sustainable Development Goal 17 which aims to enhance policy coherence for sustainable development as part of the 2030 Agenda.
PCD operates in a multi-polar global economy in which all
countries are playing a role in driving global growth and enabling
sustainable development. A rapidly changing global economic landscape
means every country is facing more complex and interlinked economic,
social and environmental challenges. A better understanding of the
linkages of the emerging global trends and their implications is
critical for countries as they craft strategies for sustainable
development.
Principles
Policy coherence for development (PCD) refers to the integration of economic, social and environmental dimensions of sustainable development and is aimed at enhancing coherence between domestic policies and foreign, international cooperation or development policies. Related terms which describe similar concepts are for example policy coordination, environmental policy integration and environmental mainstreaming.
Under the principles of PCD, potential conflicts of objectives
and interests between international co-operation and other sectoral
policies of the various federal departments should be identified and
resolved as far as possible. These may be in the following policy areas:
Migration policy, agricultural policy, environmental policy, health
policy, financial sector policy, security policy, education, research
and cultural policy.
Researchers explain that policy coherence can be understood as
"consistency across the policy cycle: setting and prioritizing
objectives, policy instruments and implementation and monitoring,
analysis and reporting on policy outcomes. For example, setting and
prioritizing objectives should avoid unintended negative impacts on
other sectors or the international norms and goals to which a country
has committed".
A key assumption underlying the concept of policy coherence for development is that ineffective, inequitable and unsustainable development interventions are, in part, the consequence of fragmented, siloed, and therefore incoherent institutional and policy design. By and large, coherence
is understood as “a function of how rules, policies, and arrangements
across dimensions of global [national and sub-national] governance are
coordinated”.
This suggests another assumption: that changing institutional
rules, procedures, and structures can create 'win-win' opportunities to
serve a common goal—a theme that dominates discussions about coherence.
However, scholars have pointed out that the design logic informing the
pursuit of policy coherence neglects that substantively, policy
coherence is shaped by choices and preferences over what gets
prioritised. Therefore, efforts to improve institutional arrangements for policy coherence would do little for sustainable development if the meaning of sustainable development itself remains undefined or evasive of systemic causes of incoherence.
The origins of the concept go back to successful European NGO
campaigns of the 1990s that put a spotlight on 'dumping' of European
products in developing countries, and which in 1992 led to an article in
the Treaty on European Community
that required EU policy makers to take account of developing country
interests when drawing up new policies. Depending on the translation,
this Treaty article was referred to as promoting coherence (e.g. German
version) or consistency (e.g. English version). Later that same decade
the OECD added 'for development' so as to clarify that 'PCD' was about
ensuring that policies do not harm and where possible contribute to
international development objectives. Examples of PCD definitions
clarifying this impact focus can be found in the 2005 European Consensus
on Development and the 2008 outcome document of the UN MDG summit, both
of which link to the MDGs.
The concept of policy coherence for development (PCD) first emerged in discussions among international aid
donors in the early 1990s. The term Policy Coherence for Development
(PCD) originally emerged from the realisation that non-aid policies of
donors affect developing countries and should not distract but rather be
supportive of international development goals. The PCD concept
initially emphasised the responsibility of developed countries to take
into account the effect on developing countries when formulating
domestic policies across different sectors (trade, finance, migration,
security, technology, science). It thus originates from a north-south
paradigm with responsibilities for better PCD placed on developed
countries to the benefit of developing countries. As the concept
evolved, PCD has been understood to go beyond a 'do no harm' approach,
also with a requirement to seek synergies between development
co-operation and other policies as well as to correct existing
incoherencies. The debates taking place in the EU and the OECD on
promoting PCD have also fostered the understanding that PCD should be
enhanced at different levels. These were commonly referred to as
internal, intra-governmental, inter-governmental, multilateral, multi
stakeholder and developing country coherence.
Over the decades, the commitment to policy coherence has received wide-ranging and sustained political endorsements. In global goal-setting, the policy coherence goalpost has broadened from a predominant focus on North-Southdevelopment cooperation framed around poverty alleviation
to universal sustainable development “in ways that balance economic,
social and environmental goals; consider domestic and international
effects of policies; and support long-term sustainability”. Amongst most OECDdonors, this shift is conveyed in the change of nomenclature from Policy Coherence for Development to Policy Coherence for Sustainable Development.
Applications by donor
European Union
The
European Union has translated this idea into a legal commitment as most
recently stated in the Treaty of Lisbon in 2009 and has highlighted the
concept in political declarations and communications, including the
position on the post-2015 agenda ‘A decent life for all’.
The OECD expressed political will to ensure PCD as noted its 2008
Ministerial Declaration and in the following 2010 Council
Recommendations on PCD. The OECD Strategy for Development also assigns
key importance to PCD. Both OECD and EU have put in place systems and
tools define overall ambition and targets, facilitate decision-making
and monitor progress, which include institutional mechanisms, monitoring
tools, e.g. peer reviews, indicators and reporting, as well as policy
tool-kits presented as practical measures to achieve progress. Some OECD
Member states, for example Finland, the Netherlands, have currently
developed and piloted self-assessment PCD toolkits. Finland and
Switzerland are also testing developing country-level impact assessments
in the area of food security.
The European Centre for Development Policy Management (ECDPM)
a think tank focused on development co-operation that is based in
Maastricht, The Netherlands, argue that Policy Coherence for Development
(PCD) is fundamentally a matter of politics. A key dilemma for the
countries is how to develop and sustain a level of political interest in
and support for PCD, how to put PCD on the political agenda, and to
retain momentum and make commitments towards promoting PCD meaningful at
both the national and EU level. Although the potential benefits of
effective PCD remain unquestioned, ECDPM argues that political
leadership, sponsorship and focus have waned in recent years in the
several countries, even if many of these are considered global leaders
in PCD.
A recent report from the European Commission states that the
European Union has made good progress on Policy Coherence for
Development (PCD) at both European and Member State level, a fact
recognised by the OECD in the most recent (2012) OECD DAC peer review.
It argues that the EU has cemented its position as a global leader in
implementing PCD commitments in policy-making. It does however
acknowledge that there is still room for progress in terms of using
mechanisms such as impact assessments, evaluation and/or measuring,
monitoring progress and reporting on implementation. The Commission
argues that the EU remains the lead actor for PCD internationally, ahead
of its main partners, with the highest levels of political and legal
commitment. More recently, PCD issues have benefited from sustained
high-level political attention in the EU and featured more prominently
on the agenda of the EU Foreign Affairs Council.
The Netherlands
The Netherlands
has been highly influential in the development of PCD, and is one of
the frontrunners in applying PCD at the national level. This country
uses PCD in its whole-of-government approach, with different ministries
and departments jointly implementing PCD activities.
The government of the Netherlands believes in the mutually beneficial
relationship between trade and development cooperation, and this lies at
the core of its PCD approach. Furthermore, the Dutch PCD approach
acknowledged already since at least 2002 that developing countries are
all different, and that policies should be adapted to specific
localities, individuals or cultural groups.
The Dutch PCD approach aims to integrate sustainability with the
other objectives of sustainable development, for example in the area of climate action: “Climate action is integrated into development activities, in particular in the areas of energy, water and food security. In this way it is achieved that climate action and development action do not undermine each other but reinforce each other”.
United States
Policy coherence for development is among the many criteria for the OECD Development Assistance Committee Peer Review Process. The 2011 DAC Peer Review of the United States stated that "The
OECD/DAC describes progress towards policy coherence for development
(PCD) as involving three building blocks: (i) a political commitment
that clearly specifies policy objectives; (ii) policy co-ordination
mechanisms that can resolve conflicts or inconsistencies between
policies and maximise synergies; and (iii) monitoring, analysis and
reporting systems to provide the evidence base for accountability and
for well- informed policy making and politics (OECD, 2008a). The 2006
peer review encouraged the US government to develop a more explicit
policy on the role of policy coherence for development and to put in
place the resources needed to carry out analysis and effectively manage
the policy coherence agenda. Five years on, the US has achieved mixed
progress in implementing these recommendations and the three PCD
pillars"
The OECD argue that national security strategy cannot substitute
for a policy coherence for development agenda. After the passing of the
FY14 State and Foreign Operations Appropriations bill in 2013, Kate
Almquist Knopf, a former assistant administrator for USAID, blogged that
"There is a fundamental mismatch between the United States’ foreign aid architecture, resources, and objectives" and that the bill was a "stinging reminder of the low esteem in which many members of Congress hold global development and the US Agency for International Development (USAID), the primary federal agency charged with delivering US foreign assistance worldwide." She called for the USAID administrator to be a standing member of the National Security Council, and the US Secretary of State
could return actual budget and planning authority to USAID by restoring
the USAID administrator as the dual-hatted director of US foreign
assistance.
Applications by sector
Food security
Food security
is a major development challenge and to address this, the EU amongst
others has effectively put global food security high among its
development priorities for the years to come. However, while the
European Union is the world's major development actor on food security,
as ECDPM argues some of its other policies are still contested as
harmful to global food security and agricultural development.
An analysis of EU policy-making processes related to agriculture,
fisheries, energy and trade shows that some tangible efforts have been
made to strengthen policy coherence 'for food security'. However, these
are tentative steps. Other concerns and interests dominate the debates
and shape the outcomes, while global food security considerations play a
very marginal to no role, or the food security rationale used is at
odds with the logic of the EU's own food security policy framework.
Sustainable Development Goals (2015-2030)
The target of the United Nations Sustainable Development Goal 17 aims to enhance policy coherence for sustainable development as part of the 2030 Agenda. Target 17.14 is formulated as: "Enhance policy coherence for sustainable development."
This target has one Indicator: Indicator 17.14.1 is the "Number of
countries with mechanisms in place to enhance policy coherence of
sustainable development".
United Nations Summit on the Millennium Development Goals
Amid international reflection on the form and content of a post-2015 framework,
among many other issues, PCD was highlighted as being a key component
of the 'beyond-aid' debate. The post-2015 agenda discussions emphasised
the need for a universal development agenda that is relevant to the
needs of all countries and which is based on shared responsibilities.
This is against the background of a changing global development
landscape and shared development and 'global public goods' challenges,
such as climate change, widening income inequalities, resource scarcity
and environmental degradation. The original PCD concept focusing on
'beyond-aid' policies of OECD DAC donor countries does not easily fit
such a new 'universal' logic. For this reason, the OECD has
reconceptualised PCD and now promotes a wider universal approach and
definition of PCD in the context of the post-2015 agenda.
The Eighth Millennium Development Goal
(MDG8) was designed "to create an environment – at the national and
global levels alike – conducive to development and to the elimination of
poverty." The OECD argue that progress in achieving the MDG8 has been
limited and in fact the MDG8 downplayed the importance of domestic
policies and domestic resource mobilisation in financing the MDGs and
fostering development. They also argue that discussions on PCD have
mainly taken place among donors, having focused on coherence between aid
and non-aid policies and on a sector-by-sector basis. This has meant
focusing on issues with important cross-border dimensions, such as
trade, agriculture, investment, health and migration, amongst others,
but without giving attention to the multi-dimensionality of development
challenges. At the same time, an approach to "naming and shaming" has
succeeded only in highlighting the failures and negative effects of
non-aid policies. This has been counterproductive for engaging other
policy communities and key actors beyond those in development.
A paper by ECDPM argues that the various of the ideas and
principles of PCD can be mainstreamed in the post-2015 framework without
using strong PCD jargon. These include i) targets for Means of
Implementation in thematic areas that effectively require strengthened
PCD efforts, ii) targets in relation to capacity building for more
integrated and evidence-based policy-making and iii) efforts to build a
strong accountability framework. The paper further concludes that
independent from whether a universal PCD concept will explicitly be part
of the language of a new framework, real progress on PCD will have to
remain a major, if not the most, important component of OECD and EU MS
action in achievement of post-2015 commitments.
Measurements
The Policy Coherence for Sustainable Development Index
(PCSDI) is an index elaborated by the Non Governmental Organisation
Coordinator in cooperation with the Spanish Network for Development
Studies REEDES.
PCSDI analyses both the policies that make a positive contribution to
sustainable development in a country and those that impact negatively,
not only on that country, but also on third countries or on the whole
planet.
In 2019 PCSDI 148 countries are ranked from 26.76 (the worst,
India) to 79.02 (the best, Denmark). The PCSDI has 5 components:
economic, social, environmental, global and productive.
Critique
In
2013, the high-profile development blogger Owen Barder wrote a critique
of the concept of 'Policy Coherence for Development' entitled 'Policy
Coherence Is a Hobgoblin'. He argued that "The term PCD has given us
an industry of reports and conferences focussing on whether countries
have policies which are consistent with each other, and institutions
thought likely to make them so, instead of focusing on whether and how
those policies are individually supportive of, or inimical to,
development." He argued that the PCD concept has "perhaps subconsciously, altered the country’s policy objectives away from impact to consistency."
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