Charitable Giving

Choice of Charity or Charities—Some family businesses choose to provide financial support only to causes that are personally important to family members, regardless of their influence on the business or industry in which the family is involved. Other families, meanwhile, may choose to steer their charitable giving toward areas that also impact on the family business. A publisher who supports literacy causes, for example, can publicize that connection and boost its public image. A paper manufacturer that supports environmental and deforestation causes may, likewise, create good will in the community.

Of course, many families will discover that agreeing on the primary recipients of a charitable giving program is no easy matter. Some family members may be enthusiastic supporters of a non-profit organization, only to find to their dismay that other members are lukewarm or even hostile to that organization's goals and mission. In such instances, consultants urge individuals not to adopt an intransigent position or engage in "tit-for-tat" negotiations in which approval of a charity is withheld until family members agree to provide financial support to a cause of which they may not be enamored. There are plenty of charities out there to which everyone should be able to agree to donate. In instances where disagreements break down along generational lines, another option is to create a three- to five-year plan in which the causes favored by one generation give way over time to those favored by the next generation.

Deciding How Much to Give

The size of charitable donations that family-owned businesses give is, of course, directly linked to the size and fortunes of the family business. A family-owned lumber business with several locations and a host of reliable corporate clients is obviously going to be able to make larger donations, if it is so inclined, than are the owners of a single sporting goods store. But no matter what the sum total of donations is, family members should make sure that they arrive at the total together and in an informed fashion. That is, organized giving totals should be arrived at with an eye toward the business's current financial standing and its future business plans and prospects. A company poised on the brink of a major expansion effort, for example, may adopt a more modest strategy of organized giving than would a mature business that requires less reinvestment.

Another consideration that members of family-owned businesses need to weigh is their allocation of time to charities. Certain individuals may be enthusiastic supporters of a charity, giving considerable amounts of time and talent to the organization in order to advance its work. Such selflessness is laudable, but it can also give rise to resentments among fellow family members if they begin to feel they are taking on an unfair share of the company's workload as a result. For this reason, family members should make sure that they communicate the needs of the business as well as the charity to one another through regular meetings. Of course, sometimes a business may find that extensive involvement in charitable work can also pay dividends for the company. A hands-on involvement in charitable work demonstrates a tangible commitment to the cause while also allowing for networking with others in the business community.

Choosing a Vehicle for Giving

Many a family-owned business has chosen to establish a philanthropic foundation to guide its charitable activities. This is especially true of families that own larger businesses that can afford to make donations of considerable size. If you intend to donate a very large sum, more than $250,000, there are advantages to setting up a foundation, which is a legal entity recognized under state law and by the IRS as a non-profit corporation. Such foundations are subject to complex rules. Nonetheless, contributions to the foundation are generally tax-deductible, whether they're made by family members or by non-family members who support the foundation's goals. Before committing to a foundation, however, small business owners should consider the various restrictions that apply (foundations are required by law to distribute a minimum of five percent of their net worth to charities every year, for example) and the legal and accounting fees associated with running it.

Another option that some small businesses pursue is the formation of a charitable council. Like individuals, the council can give tax-deductible donations to charities. However, councils are not recognized by or accountable to the IRS and as a result contributors do not receive a tax break on any direct contributions to the council's funds.

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