Giving Compass' Take:

• The Philanthropic Enterprise Act of 2017 allows private foundations to own a business under specific conditions, including the condition that 100% of the profits go to charity. 

• What foundations would benefit from the income from a business? Are there ways that this law can be improved to maximize impact and minimize exploitation?  

• Learn about the recent Pay for Success legislation. 

On February 9, 2018, President Trump signed into law the Philanthropic Enterprise Act of 2017 as part of the Bipartisan Budget Act of 2018. The new law allows private foundations to own 100 percent of a business under certain conditions.

The new law, Section 4943(g) of the Internal Revenue Code, permits a private foundation to own 100 percent of a company under the following conditions:

  1. The foundation must own 100 percent of the shares. There cannot be any other shareholders, and the shares must have been donated to the foundation or acquired in some manner other than by purchase.
  2. All profits must go to charity. The company has to distribute 100 percent of its net operating income to the foundation within 120 days of the end of each fiscal quarter.
  3. The for-profit company is operated independently of the foundation. First, no substantial donor to the foundation can be a director, officer, or employee of the company. Second, a majority of the company's directors have to be persons who are not also on the foundation's board. Finally, the company may not make loans to substantial donors of the foundation.
  4. Donor-advised funds and some supporting organizations, cannot take advantage of the new law. Donor-advised funds and non-functionally integrated Type III supporting organizations are specifically excluded from the new law, thus are still subject to the 20 percent rule.

Read the full article on the Philanthropic Enterprise Act of 2017 by Allen Bromberger at PhilanTopic.