What is the difference between a private foundation and a public charity?
The Foundation Center defines a private foundation as a nongovernmental, nonprofit organization having a principal fund managed by its own trustees or directors. Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations.
Most people forming non-profit organizations prefer to set up a 501(c)(3) public charity because the opportunities for public donations are far greater. Private donors to a 501(c)(3) “public charity” may donate up to 50% of their adjusted gross income. Donors to a “private foundation” can only donate up to 30% of their adjusted gross income. Ultimately, the IRS will look at an organization’s primary source of financial support to determine if it qualifies as a public charity or a private foundation. In general, if an organization derives its support from a relatively few number of people, the IRS will classify the organization as a private foundation. If the organization’s source of support is large and varied enough, the IRS will usually classify the foundation as a public charity. To learn more and speak with a representative, please call us at (888) 381-8758. We are happy to answer any questions you may have.
Information on establishing a public charity can be found here. Although most people who use Foundation Center resources are grantseekers affiliated with public charities, occasionally people approach us with an interest in setting up their own grantmaking foundation. For specific information on this topic, you may want to contact the Council on Foundations, a national nonprofit membership association of grantmaking foundations and corporate givers. The Council on Foundation’s Web site offers a section on starting a foundation, which presents resources as well as information on the different types of foundations. There may also be a regional association of grantmakers in your part of the country that has information on starting a foundation. See the Forum of Regional Associations of Grantmakers’ Web site for a directory of such associations. In addition, there are a number of books and articles that address many of the issues involved in starting a foundation.
