Foundation basics

What is the difference between a public charity and a private foundation?

Both public charities and private foundations reside under the 501(c)(3) umbrella. But are private foundations considered to be a charitable organizations? Yes, private foundations are nonprofit charitable organizations in the same vein as a public charity. 

So how are private foundations and public charities different from one another?  Private foundations and public charities have distinct rules for governance, funding sources and pathways for serving the public good. The chart below shows some of the major differences:

The chart below shows how private foundations and public charities are all different classifications of 501(c)(3) organizations. Private foundations can be further subcategorized into non-operating foundations and operating foundations. Public charities can be subcategorized into 509(a)(1), 509(a)(2), and 509(a)(3)–a few  very rare categories do exist but they have been excluded for the sake of simplicity.

Subcategories of 501(c)(3) organizations:

Non-operating foundations:  These organizations are funded by a private source, generate revenue from an invested endowment, and typically focus on making grants to other charitable organizations. Almost all non-operating foundations could be more simply called grant-making foundations. Examples include the Gates Foundation, the Ford Foundation, and the Rockefeller Foundation. 

Operating foundations:  These organizations are funded by a private source and typically focus on directly operating charitable programs. Operating foundations are not common. Examples include non-profit research facilities and libraries.

509(a)(1) Organizations:  These organizations exist for the public benefit and are primarily supported by public sources such as the government, the general public, and grant making foundations. These organizations are what people most often think of when they hear the term “non-profit”. Examples include churches, hunger-relief organizations, and anti-poverty organizations.

509(a)(2) Organizations:  These organizations provide a service in carrying out their charitable mission that generates a large amount of revenue. Examples of these organizations include museums and zoos.

509(a)(3) Organizations:  These organizations are subordinate to and support another 501(c)(3) nonprofit. The support is often in the form of fundraising. Examples of these organizations include separate endowments that support libraries, universities, and hospitals.


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Foundation basics