501(c)(3) vs. Private Foundation: What Sets Them Apart?

When it comes to organizations in the nonprofit sector, there are important differences between public charities and private foundations. These differences primarily revolve around their funding sources and the level of control they exert over their assets.

In the case of public charities, they rely on a diverse range of individuals and entities for financial support, while private foundations tend to be funded by a smaller group of donors.

Private foundations also face more stringent regulations concerning their activities and investments. They are obligated to distribute a minimum percentage of their assets annually to other charitable organizations.

So, What Exactly is a 501(c)(3) Public Charity?

A 501(c)(3) public charity is an organization whose income must derive from public donations by at least one-third. On the other hand, private foundations are typically established and funded by either a single individual or a small group, such as the renowned Bill and Melinda Gates Foundation.

Public charities are further classified into two subcategories:

• Organizations that receive substantial support from the general public through contributions, membership fees, and grants. Examples include churches, schools, and hospitals.
• Organizations that receive substantial support from government grants and contracts. Universities, museums, and research institutions are prime examples.