Establishing a 501(c)(3) foundation can be a powerful move for chambers looking to expand their reach, make a lasting impact in their communities, and secure a stable source of funding to do more in the community. These nonprofit organizations serve as valuable tools for community engagement, economic development, and philanthropy. But how do you get started in launching a 501(c)(3) foundation and what challenges should you be aware of before you start the process? We’ve outlined the steps involved, potential challenges, and the important do’s and don’ts of expanding your chamber’s abilities with a 501(c)(3).
What Is a 501(c)(3)?
According to the IRS, a 501(c)(3) in order to be tax-exempt must be “organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.”
And since most of us don’t understand legalese (or choose not to), let’s break that down into the designation’s benefits to chambers, what to expect during the process, and a few examples of how other chambers are using them.
Why Should Chambers Launch a 501(c)(3) Foundation?
1. Tax Benefits: A 501(c)(3) foundation is tax-exempt and can offer significant tax advantages to the chamber and its donors. Contributions made to such foundations are typically tax-deductible (but always encourage donors to check with their tax advisors).
2. Charitable Giving: Chambers can enhance their role as community leaders by providing a platform for charitable giving. They can support various local causes, stimulate economic development, and improve the quality of life in the community.
3. Diversified Funding: Chambers often rely on membership dues and sponsorship for their financial support. A foundation can create a more diversified and sustainable funding stream, reducing dependence on these traditional sources.
4. Greater Impact: By focusing on philanthropic endeavors, chambers can address critical community issues, making a lasting impact and improving the overall well-being of their regions.
5. Reduction in Chamber Costs: Since things like education can be funded by the Foundation, some chambers use their Foundation to take a burden off of the chamber in areas that are covered like education. For instance, if you have a leadership program at your chamber, you can run it through your Foundation. You can also pay for whatever part of the salaries are attributable to the work they’re doing on the leadership program. For instance, if you spend one week a month on developing and implementing your leadership program, that portion of your salary (25% in this example) could be paid by the Foundation.
What to Expect When Launching a 501(c)(3) Foundation
Launching a 501(c)(3) foundation can be a transformative process for your chamber, but it is essential to understand what to expect:
1. Legal Considerations: The process involves navigating legal requirements, including filing for tax-exempt status with the IRS, drafting bylaws, and ensuring compliance with federal and state regulations. You can do these things yourself or you can pay someone to do it.
2. Resource Commitment: Establishing and maintaining a foundation requires significant time, effort, and resources. This includes administrative work, fundraising, and program development. People who sit on the chamber board can also be in the governing body of the Foundation. But you want to ensure that whomever you select for the foundation roles that they are able to dedicate the time to getting it started.
3. Fundraising Challenges: Foundations must engage in ongoing fundraising to support their mission. Developing donor relationships, seeking grants, and planning events are all part of this effort.
4. Governance and Oversight: The foundation should establish a board of directors to oversee its operations, create a clear governance structure, and ensure transparency and accountability.
5. Program Development: Developing and managing programs and initiatives aligned with the foundation’s mission is crucial. This may involve partnerships, grant distribution, and community engagement. If you want to reap the benefits of a foundation and show your community its value, then you’ll want to have a plan for how you will use it and what its mission is.
6. Marketing and Branding: Promoting the Foundation and its activities to attract donors, sponsors, and community support is vital for success.
Steps to Launch a 501(c)(3) Foundation
Let’s break down the order and expectations of what you’ll have to do to create a Foundation.
1. Define Your Mission and Goals: Start by clearly defining the foundation’s mission, vision, and objectives. Determine the specific community issues or causes you wish to address. Don’t go into it saying you will do everything or nothing will get done. Give it a main 2-3 issue approach. You can always grow from there.
2. Assemble a Team: Form a dedicated team or committee responsible for launching and managing the foundation. Identify key roles, including board members, officers, and staff.
3. Legal Structure: Decide on the legal structure, usually a nonprofit corporation. Draft bylaws and apply for tax-exempt status (501(c)(3)) with the IRS.
4. Governance: Establish a board of directors with diverse skills and experiences. Develop a governance structure that ensures transparency and accountability. This is not a place for someone who’s not going to provide assistance. Placing people in these leadership roles who help with fundraising/donor relations (either directly or through their connections and reputation) can be a large benefit.
5. Fundraising: Create a fundraising plan, which can include grant applications, donor cultivation, membership fees, events, and corporate partnerships.
6. Marketing and Branding: Develop a strong brand and online presence for the Foundation. Use storytelling and engagement strategies to attract support. Highlight your accomplishments for the community because they have the potential to bring in additional support and funding.
7. Program Development: Create programs and initiatives that align with your chamber’s mission. Ensure they are well-designed, have measurable outcomes, and benefit the community.
Challenges to Expect
While launching a 501(c)(3) foundation offers numerous benefits, there are challenges to be aware of:
1. Legal Compliance: Navigating complex legal and regulatory requirements can be time-consuming and may require legal counsel.
2. Fundraising Demands: Sustaining a Foundation involves ongoing fundraising efforts, which can be challenging, especially in the initial stages and when you’re asking for money and sponsorships for the Chamber as well. If not done strategically, people can feel like you’re constantly dipping into their pockets. That’s why telling the stories around the Foundation’s initiatives is extremely important.
3. Competition: There are often other established nonprofits in your community, so standing out and finding your niche may require strategic planning. If you have nonprofits as members, they may feel disgruntled that you are in competition with them. If this happens, ensure them there are valuable partnerships that can be undertaken for the value of the community.
4. Administrative Overhead: Managing the day-to-day operations of the Foundation can be resource-intensive, requiring careful budgeting.
What Not to Do with a 501(c)(3) Foundation
Do not use the Foundation for:
1. Political Campaigning: A 501(c)(3) foundation cannot participate in, nor support political campaigns, including endorsing candidates. That doesn’t impact the Chamber’s endorsements. Just keep that removed from the Foundation’s work.
2. Excessive Private Benefit: Avoid providing excessive benefits to individuals, as this may jeopardize the foundation’s tax-exempt status.
3. Self-Dealing: Foundation board members and key individuals must not engage in transactions that result in personal gain.
Examples of Chamber 501(c)(3) Foundations
Here are a few examples of chambers with 501(c)(3) foundations and what they’re working on/using their foundations for.
The Alameda Chamber Foundation
While this Foundation is tasked with several important initiatives, one of its most visible is its annual scholarship program for graduating high school seniors. This program is a visible representation of the Chamber’s commitment to developing future leaders (particularly in the STEAM fields) and helping them achieve their educational dreams in the hopes that they will return to the area post-training/education.
The Manhattan Chamber of Commerce Foundation
The Manhattan Chamber has two 501(c)3 nonprofit arms: The one foundation arm allows them to provide resources, education, and other programming to the business community. The Chamber’s Community Benefit Fund helps the Chamber to support the good work of charitable organizations focused on “improving the quality of life in Manhattan.”
The Clermont Chamber of Commerce Foundation
This Foundation has a host of activities it undertakes including:
- Golf for Kids Outing – Annual golf outing that supports the Work Readiness Initiative.
- KLiCWOW – The project provides tablets and WOW pouches to a targeted audience consisting of all Clermont County children ages 3 to 4.
- LEAD Breakfast – Monthly event with a focus on leadership topics for LEAD Clermont alumni and guests.
- LEAD Clermont Community Leadership Program – High impact, lively leadership and team building program developed to engage class members with volunteer services throughout Clermont County.
- Law Enforcement Appreciation Banquet – Over 30-year award tradition of showing thanks for the tremendously good acts performed by Clermont police and citizens that are not always publicized.
- Salute to Leaders Awards – Annual program that honors both individuals and businesses throughout the community for their contribution to Clermont County.
- Work Readiness Initiative – Collaborative effort of business and community leaders who partner with educators to prepare students to be “work ready” through signature programs developed and presented by the Clermont County business community.
The Santa Monica Chamber of Commerce Foundation
This Chamber Foundation oversees its signature program, NextGen Mentorship, partnering with the Santa Monica College. The NextGen program runs for six weeks (fall and spring term) and is focused on the Black and Latinx students at Santa Monica College. The mentors are Black and Latinx professionals and chamber members from various industries who provide the mentees with valuable information on navigating career pathways to success.
Launching a 501(c)(3) foundation is a significant step for your chamber, offering opportunities to make a lasting impact in your community and secure diverse funding streams. With careful planning, a dedicated team, and a clear mission, you can successfully navigate the challenges and establish a foundation that will benefit your community for years to come. By adhering to legal requirements, embracing transparent governance, and fostering strong donor relationships, you will unlock the full potential of your foundation for the betterment of the community.
