Honoring Grant Commitments amid Difficult Corporate Finances


In light of current economic conditions, the corporation has asked whether the company's private foundation may honor grant commitments already made by the corporate giving program. Can the private foundation make these grants?


Maybe. The facts and circumstances surrounding the grants initially made by the corporation will determine whether the foundation is permitted to make the grants instead. The basic question is whether the grant represents a legally binding obligation from the corporation to the grantee. In many cases, the foundation’s fulfillment of the corporation’s grant commitment would relieve the corporation of its financial obligation and, therefore, be a prohibited act of self-dealing. In some cases, however, the foundation could honor the commitment. If faced with this question, it will be important to work with counsel to determine the best course of action.

As background, the private foundation self-dealing rules specifically prohibit a private foundation from fulfilling a legally binding pledge of a “disqualified person.” Since the corporation is often the substantial contributor to the corporate private foundation, the corporation is typically a “disqualified person.”

While many people think of a pledge as a commitment of an individual to pay a charity a certain amount over time, an unconditional grant commitment by a corporation or foundation can also be considered a pledge. While there is some variation, in many states a pledge is a legally binding obligation. A recipient charity could seek payment of the grant through legal means if the corporation stopped paying on the grant. In other words, the corporation is legally and financially obligated to make the grant, regardless of any changes in its financial circumstances. In the end, if the corporation has made a legally binding grant commitment, the foundation may not assume the payment(s) on the grant.

If, after working through the situation with counsel, the foundation determines that there is no legally binding commitment under state law, the foundation could honor the commitment and make the grant. In that case, the foundation would likely want to execute its own grant agreement with the grantee. The foundation would also want to examine whether any benefits are expected to be provided by the grantee as a result of the grant. For example, if the grantee was going to provide tickets to a fundraiser or advertising space to the corporation, the foundation would want to decline those benefits or handle them in a manner that does not provide an impermissible benefit to the corporation.


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Grantmaking Policies

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