Private Foundation vs Public Charity

 

Private foundation

Private foundations are non-governmental and nonprofit organizations, whereby it delegates the management of its principal fund to its own trustees or directors. The aim of private foundations is usually to aid charitable or educational activities for the greater good of the public. While private foundations may be in charitable and nonprofit nature, they do not qualify as public charities.

Distributions are made in the form of grants or gifts to other non-profit organizations. The source of the fund usually derived from a single source, such as an individual, family or even a corporation. A private foundation does not source its fund from the public.

There are two common types of private foundations; private nonoperating foundations and private operating foundations.

  • Private non-operating foundation

This is the more common type of private foundation, where it grants money to other charitable organizations and does not directly perform its own charitable programs or services. One example of this is the Bill & Melinda Gates Foundation (the world’s largest charitable foundation) founded by the co-founder of Microsoft, aimed to enhance healthcare, reduce extreme poverty, expand educational opportunities and grant wider access to information technology.

 

  • Private operating foundation

A private operating foundation distributes and uses the bulk of its income to provide charitable services to its own programs.

An example of this is the J. Paul Getty Trust (also known as The Getty Foundation). It is the world’s wealthiest art institution, with an estimated 1.6 million visitors per year. The trust operates as one of the most frequently visited museums in the US. It provides grants and training to other museums and art institutions, with the aim of advancing the greater understanding and preservation of visual arts.

 

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Public charity

One primary difference between public charity and a private foundation is the source of the funding. The funds of a public charity are usually derived from contributions from the general public, government, grants from individuals or even from private foundations. Donations or contributions to public charities are often fully tax deductible. Public charity typically has broad public support and commonly networks and supports other public charities.

The mission of such public charities is similar to private foundations, where it is often ranging from curbing poverty, advancing educational level to medical researchers for the greater good.