Corporate philanthropy is when a business donates to a cause or organization. Corporations usually engage in corporate philanthropy as a part of their community relations strategy, and they may choose to work with specific causes that are important to them (e.g., the environment) or recipients who will help achieve their bottom line goals (e.g., groups that support the company’s brand). Donating money to charities and other organizations is just one example of how corporations demonstrate their ongoing commitment to the communities in which they operate – in many cases, companies also offer volunteer opportunities for employees, hold fundraising events for nonprofits, and more.
Legally speaking, corporate philanthropy can take two forms: donations made directly by a corporation or through a corporate foundation. A company’s charitable contributions are tax-deductible if made to qualified organizations and used for approved activities. Depending on the nature of a business, some forms of giving may require approval by the board of directors or shareholders before donations can be disbursed to nonprofits.
There are two types of philanthropic organizations: private foundations (which typically contribute 1% – 5% of their assets per year) & public charities (which generally spend 5% – 9% annually). Public charities must pass a public support test requiring at least 33 1/3 % of financial support from the general public, governmental units, and specific vital foundations. In addition, the law requires each individual who runs a private foundation to work full-time or devote substantial amounts of his own time to the foundation.
There are many ways businesses can contribute money and resources to nonprofits and other causes they care about. The most common forms of corporate philanthropy include:
Cash Grants (One-time & Recurring)
Corporations may contribute a specific sum of money each year, understanding that it will be used for a designated purpose. Because cash is easy to measure, track, and quantify, corporate giving is a prevalent form. Companies may also set up recurring donation programs in which they automatically charge a fixed amount from an operating budget on a monthly or quarterly basis. In addition, some companies pledge to provide a certain number of hours of paid employee volunteer time each year, usually as a stipulation of receiving tax breaks on certain business expenses.
One-time donations are often small and easy to give, and in many cases, they are made with no expectation of receiving something in return. On the other hand, recurring cash grants or contributions can be much more substantial. For nonprofits, it’s essential to understand that corporate giving is not always a steady stream but rather one where the size of the donation may change suddenly and without warning due to changes in a company’s financial situation or other concerns. If this happens, organizations can lose vital funding at short notice; however, some businesses choose to set aside money every year that ensures their support regardless of market fluctuations.