According to an online directory of non-profits, there are currently 141,395 private foundations operating in the United States, representing $1 trillion in assets. While both private foundations and public charities offer the opportunity for social impact, private foundations offer a greater level of control.
What’s the difference between public charities and private foundations? This guide will explore their key differences and highlight four advantages that a private foundation can offer that a public charity cannot.
Table of Contents
Foundation vs. Charity: What’s the Difference?
On the surface, private foundations and public charities have a lot of similarities. Both types of organization:
- Are aimed at some specific public good
- Receive funding through donors, not customers
- Are classified as tax-exempt 501(c)(3) organizations by the IRS
The key difference, however, lies in how the two organizations are funded. A public charity receives financial support from the general public. A private foundation, on the other hand, usually only receives funding from a single individual, family, or corporation.
What a Private Foundation Can Do
At first, a private foundation might seem limiting. After all, wouldn’t it be better to solicit financial support from the general public than rely on a small set of private donors? Private foundations have strong advantages over public charities. Here are 4 things that a private foundation can do that a public charity cannot:
1. Determine and Maintain the Mission
Since the foundation is privately-run, you have absolute freedom over its mission and direction. This control means that if there is something that your family or company is passionate about, you get to address the issue from your unique perspective.
Public charities may ask you to compromise your personal values, but a private foundation helps you preserve them.
2. Decide Who to Include on the Board
Similarly, a private foundation allows you to determine who will sit on your board of directors. Public charities work a bit differently, and without control over your board, you may lose a large measure of control over the mission and control of the organization.
3. Control Where and How Funds Are Distributed
One of the surest benefits of a private foundation is that you retain absolute control over the distribution of your funds. For example, if you have a particular cause that you’re passionate about, a private foundation will give you total freedom to pursue this cause.
This discretion may be particularly important if you or your family are committed to supporting faith-based initiatives that public charities do not.
4. Create a Family Legacy
Finally, a private foundation can exist in perpetuity. This longevity means that when you create a private foundation, you create something of a living heirloom to pass on to future generations.
A private foundation can therefore ensure that your beliefs and values are preserved for years to come and that you leave a lasting imprint on your community and world.
Why Choose a Private Foundation?
These advantages don’t mean that private foundations have no limits. The IRS specifies that all of the activities of a private foundation must adhere to its central purpose.
Nevertheless, a private foundation can provide a greater level of control than other forms of charitable giving, and it can be an ideal way for families and companies to make an impact on the world around them.