Private Foundation vs Public Charity: The Differences Explained

ByDanica Jovic
May 10,2022

Charitable organizations support and fund causes and initiatives across the world. In this guide, we’ll explore two types of charitable organizations: private foundations and public charities. Although there are similarities, there are important differences in the ways foundations and charities are set up and how funds are collected.

In this guide, we’ll delve deeper into the question of private foundation vs public charity, discussing charity and foundation differences and providing a private-public foundation comparison. 

What Is a Private Foundation?

A private foundation, which may also be known as a private nonprofit, is an independent charitable organization. In most cases, private foundations are established by wealthy individuals, families, or businesses. Unlike public charities, which participate in fundraising activities, private foundations usually generate funds via investment from groups, families, or philanthropists. It’s common for foundations to bear the name of their founding members as part of the organization’s moniker; the Bill and Melinda Gates Foundation is a well-known example of this.

Private foundations are eligible for tax-exempt status in the US provided that they operate within IRS guidelines. To qualify as a 501(c)(3) private foundation, the organization must exist to support one of the causes mentioned in the following IRS guidance: “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.”

The most important foundation and 501(c)(3) comparison is tax-deductible status. Donations to all charities, including private and public foundations that qualify as 501(c)(3) entities are tax-deductible to donors. 

How Do Private Foundations Work?

Typically, private nonprofit organizations are set up by sole benefactors, families, or companies. In most cases, the foundation uses an endowment (an initial investment) to generate funds, which are then distributed to causes, initiatives, programs, or schemes run by other individuals or charities. The structure of a private foundation contributes to stability and consistency, as the investment products usually generate a steady, reliable income. This makes budgeting simpler and enables boards, panels or individuals to decide where to spend money and how to make funding choices. 

As private foundations are run by donors, they maintain control of:

  • The foundation’s purpose and funding goals and objectives
  • The makeup of the board
  • Funding decisions and the disbursement of funds
  • Which causes to support

What Are Public Charities?

Public charities are charitable organizations that rely on donations from the general public to support good causes and initiatives. IRS public charities are required to generate at least 33.3% of their income from contributions from the public or meet the criteria set out in the 10% facts and circumstances test. If you operate a public charity, the funds you collect from members of the public are used directly to support your endeavors, for example, giving shelter and meals to homeless people or providing healthcare. 

It is critical for boards that run public charities to demonstrate that the acquisition of funds is not carried out to serve the interests of board members or donors. The sole aim must be to support charitable causes through grants and fundraising. 

As public charities depend on donations from the general public, they must form a panel of independent members. The board should meet regularly and take responsibility for decision-making. The board should be diverse and it should represent the purpose the organization serves. A public charity board should not include several members of the same family. 

Private Foundation vs Public Charity: The Key Differences

The most significant difference between a public charity and a private foundation is the way in which funds are acquired. However, there are several important differences to be aware of. These include:

  • Funding

Funding is the most significant point to address when discussing charity and foundation differences. Private foundations are usually funded by a charity endowment, an investment made by the benefactor or corporation. The funds generated by the endowment are distributed in line with the foundation’s purpose and funding objectives. Public charities are supported by donations from members of the public, which are usually collected through grants, fundraising campaigns, one-off donations, or regular contributions.  

  • Grant-making

Private foundations often make grants, which are distributed to charities or other organizations. Public charities usually rely on donations from members of the public. It is possible for public charitable organizations to make grants, but this is much less common than for private foundations. Private foundations donate money to public charities or causes, while public charities use funds directly to benefit those in need. 

  • Public Support

Public charities must demonstrate that they receive a level of support from the general public to meet IRS criteria. Private foundations are not prohibited from fundraising and they can accept public donations, but most are entirely self-funded. 

  • Board

A private foundation is typically run by an individual or a board comprising family members or executives from the same corporation. Public charities must have a diverse board that reflects the charity’s mission; they should not have boards made up of family members or multiple individuals from the same businesses or organizations. 

  • Setup

A private foundation requires investment and is usually more expensive to establish. All charitable organizations start life as private foundations. Public charities must prove that they generate at least a third of their income from public donations to qualify for IRS exemption. 

  • Control

Running a private foundation is very different from being a board member of a public charity when it comes to control. Individuals and families that operate according to private foundation rules have much greater control than public charity board members. They decide where the money goes and how and when it is spent. Public charities should have a diverse panel of board members and are required to form a quorum to carry out official business. 

Public Foundation vs Private Foundation: What Is the Difference?

It’s common to come across the terms public foundation and private foundation when researching or reading about charitable organizations. A private foundation is not the same as a public foundation; the latter is another name for a public charity. Many charities have ‘foundation’ in their name, for example, the Make-A-Wish Foundation. Public foundations are funded by donations from members of the public, businesses, private foundations, and the government. Private foundations are funded by individuals, corporations, or families. They are not reliant on public support and maintain control of all funding decisions. 

Types of Private Foundation

There are two types of private foundations: operating and non-operating foundations.

  1. Non-operating foundations: Non-operating foundations are the most common type of private foundation. These organizations provide grants for public charities. Private foundations can generate funds through fundraising activities, but non-operating foundations are not typically involved in running programs. Non-operating private foundations are required to distribute a minimum of 5% of their net investment annually.
  2. Operating foundations: Operating foundations are actually involved and engaged in running charitable programs on a continual basis. To ensure that foundations continue to support initiatives in a sustainable manner, they must contribute a sizable portion - around 85% - of net investment assets per year. Operating foundations undertake charitable activities rather than providing grants for public charities. Examples include setting up and running an animal shelter or buying and delivering food supplies, rather than donating to a food bank. 

Private Foundation Rules

To operate a private foundation, individuals, groups, and corporations must be aware of private foundation rules and submit the required legal papers for foundations and charities. The rules relate primarily to taxation and include the following:

  • Private foundations must distribute around 5% of the previous year’s net investment assets per year.
  • They must provide grants to other charitable organizations rather than individuals (although this may be permitted in certain circumstances, for example, supporting an individual through education).
  • They have to pay 1-2% excise tax on net investment income.

Public Charity and Nonprofit Comparison

When reading about charitable organizations, it’s understandable to have questions about nonprofit and foundation differences and make public charity and nonprofit comparisons. Nonprofit is an umbrella term that covers a broad spectrum of organizations. Public charities and private foundations are nonprofits, which means that they are run for the benefit of communities or public or social initiatives. Nonprofits are not run to generate profits for donors, owners, or supporters. 

What Are the Pros and Cons of Private Foundations?

If you want to support good causes, you may be thinking about setting up a private foundation. Here are some pros and cons to consider:


  • Permanence: Private foundations can operate for many years, providing support to recipients on a consistent basis. 
  • Control: Private foundations enjoy a much greater level of control than public charities. Individuals and families have the ability to decide how to spend their money, when to donate to causes, and how much to distribute in grants.
  • Legacy: Many individuals and families decide to establish a private foundation to form a legacy, which can strengthen ties for the future or commemorate those who have passed. 
  • Tax benefits: Private foundations that meet 501(c)(3) criteria are tax-exempt. Contributors can usually claim donations as deductibles and benefactors can collect donations without paying tax on them. 
  • Opportunities: As the rules are more lenient for private foundations than public charities, foundations can take advantage of a wider range of opportunities, including donating to individuals, making international grants, offering scholarships, or setting up and running their own charitable schemes. 


  • Significant setup funds: To establish a private foundation, you need to have a substantial endowment to invest. 
  • Time commitments: Running a private foundation isn’t for the faint-hearted; it takes up a lot of your time. 
  • Record keeping and administration requirements: The paperwork demands of establishing and managing a private foundation can be overwhelming.


Private foundations and public charities are both forms of charitable organizations. Private foundations are usually established by individuals, families, or companies, and they make grants and distribute funds through their own investment assets and funds. Public charities rely on donations from the public and they support good causes, communities, and individuals directly. 

It’s important to understand the differences between private foundations and public charities if you want to support projects or programs, or if you’re thinking about setting up a foundation. Private foundations retain control of funding decisions, but they’re expensive to set up and they often require a lot of time and effort, particularly during the early stages. Public charities have diverse boards, which are responsible for making decisions, but they are governed by rules that dictate how money is collected and spent.

Are nonprofits public or private?

Nonprofits can be either public or private. Both private and public foundations are examples of nonprofits, as they aren’t run for private interests. Nonprofits do not generate profits for donors, benefactors, or board members. 

Is a private foundation considered a charitable organization?

Yes, a private foundation is considered a charitable organization. Private foundations are usually established by wealthy individuals, families, or corporations as a means of giving back and helping others. In most cases, private foundations distribute funds to public charities. 

Can a private foundation donate to another private foundation?

Technically, a private foundation can donate to another private foundation, but it is much more common for private foundations to provide grants to public charities. There are rules that affect taxation when offering donations to entities that are not classed as public charities. 

How are private foundations taxed?

Private foundations that meet IRS 501(c)(3) criteria are exempt from federal income tax. However, they must pay an excise tax of 1-2%. Under 501(c)(3) guidelines, donors can make a tax-deductible contribution to a private foundation. 

What is the difference between a foundation and a charity?

There’s no difference between a public foundation and a public charity. However, there are several differences to highlight when discussing a private foundation vs public charity. Public charities collect donations from members of the public, they must have a diverse board, and they usually engage in fundraising activities to generate income to support good causes. Public charities usually support programs directly. Private foundations are established by families, sole benefactors, or companies. They usually make grants, which are distributed to public charities. Boards often include several members of the same family. 

About the author

Danica’s greatest passion is writing. From small businesses, tech, and digital marketing, to academic folklore analysis, movie reviews, and anthropology — she’s done it all. A literature major with a passion for business, software, and fun new gadgets, she has turned her writing craft into a profitable blogging business. When she’s not writing for SmallBizGenius, Danica enjoys hiking, trying to perfect her burger-making skills, and dreaming about vacations in Greece.

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In addition to standard plans at several tiers, a fully customized plan can be designed to meet your exact needs. LiquidWeb - VPS hosting starts from $25 per month for 2 GB RAM. Additional plans are available for up to 16 GB, while users can also choose a monthly contract if they prefer. The use of VPS has gained popularity in recent years with the market showing a CAGR of around 17%. For microbusinesses and SMEs, in particular, it is an attractive prospect indeed. Dedicated Hosting Dedicated hosting is also referred to as dedicated server hosting, and that’s exactly what you get. A dedicated server ensures that your site is blessed with fast loading speeds and almost zero uptime disruptions, especially when a reliable web host is selected. The cost of web hosting will be higher in the long run, but it can be worthwhile. After all, the average online order value in the US is between $100 and $200, depending on the device the shopper uses when making a purchase. Losing sales due to inadequate web functioning as a result of an inferior host or busy shared server is the last thing any business owner wants. Dedicated servers provide full control over resources while you will not be affected by the traffic spikes enjoyed by other websites. You can also ensure that the resources you purchase match the company's needs. Some of the best options are: Hostwinds - dedicated server hosting plans starting at $122 per month. Alongside several standard packages, dedicated hosting can be fully customized with extra RAM, server drives, and RAID. IONOS - dedicated hosting plans starting at $65 per month for dedicated enterprise hardware powered by Intel, Xeon, or AMD processors, as well as API & cloud integration and unlimited traffic. A2 Hosting - dedicated hosting plans starting from $105.99 per month for unmanaged or $155.99 per month for managed services on 24-month plans. Monthly and annual plans are also available. Dedicated hosting is an excellent solution as the web hosting cost per year will still only reach four figures for most SMEs. When weighed up against potential revenue benefits, it’s still great value for money. Cloud Hosting An increasing number of business owners are now looking at VPS hosting vs. cloud hosting price plans. More than simply a place to store files as you do from your smartphone, cloud servers are a group of servers working simultaneously to ensure that your website is up and running at full speed at all times. It’s the fastest-growing sector of web hosting services, which is to be expected, taking into account that cloud computing has become increasingly accessible. The website hosting cost will reflect the fact that there are multiple servers working together as a safety net to ensure that your site is live and performing optimally. Therefore, if you can’t afford downtime or need to feel that you have complete control over your website, this is a fantastic solution that is still cheaper than dedicated hosting. Many of the best web hosting providers now offer cloud-based services, while there are also great deals for new customers as cloud servers are still relatively new. The top cloud hosting options on the market include: Host Armada - cloud hosting plans start from $2.99 per month with SSL certificates, domain hosting cost, and transfer included. Unlimited sites and 40 GB storage cost $5.39/month. DreamHost - cloud hosting services starting at $4.50 per month. DreamHost offers monthly and annual contracts, giving the user full control over the hosting services as well as website management. Cloudways - cloud hosting plans start from $12 per month while also using a pay-as-you-go model that can be adapted to suit your needs and evolve in accord with the requirements of your website. Even though cloud hosting is in its infancy, it has already helped thousands of small business owners by providing adaptable services. Cloud hosting costs aren’t the lowest on the market, but they are well worth the investment.  WordPress Hosting WordPress is the world’s most popular content management system by far and is used to power over 40% of all websites. For an easy, user-friendly website builder, WP hosting is the answer. However, you still need a host to provide a space for your site to reside. The great news is that the average WordPress website hosting cost is quite cheap. Moreover, most of the big host providers deliver easy one-click installations. This means you can start building your business website in a matter of minutes. WordPress hosting is optimized for the platform and can also use shared or dedicated servers depending on the needs of an individual or a business. Most of the major web hosts offer WordPress hosting a range of monthly and annual plans. Given the popularity of WP, it’s no wonder that some of the best hosts in this area are the biggest companies overall. Favorites include: GoDaddy - WordPress hosting services starting at $6.99 per month for one website, 30 GB of storage, and up to 25,000 monthly visitors. Bigger plans are also available, while the GoDaddy website hosting cost includes a domain too. SiteGround - WordPress hosting services priced at $3.99 per month for up to 10 GB of storage and 10,000 monthly visitors. Bigger packages are available and can be part of 12-, 24-, or 36-month plans. WP Engine - WordPress hosting services starting at $20 per month for up to 25,000 monthly visitors on an annual plan. The web host is dedicated solely to WordPress and it certainly shows in the service. All of the WordPress hosting plans allow you to build a website using the popular CMS tools and let business owners choose their theme, layout, and plug-ins. So, What Makes a Great Web Host? Whichever type of hosting plan you opt for (shared hosting, VPS hosting, or other), it’s imperative that you have 100% confidence in the web host - not least because the value of an efficient website keeps increasing every year. North America boasts the greatest number of providers and also takes a 27% share in global domain registrations. When choosing a web host service, you should consider the following aspects to make the right decision: Does the web host provide the type (cloud, VPS, etc.) of web hosting that you want? Are multiple plans, or even tailored plans, made available by the web hosting company? Does the web host have a solid track record for solving customer support issues through live chat, VoIP, and other tools? Will the web host provide additional services (domains, cybersecurity) at a good price? Can the plans evolve alongside your changing requirements as a business owner without facing penalties? Ultimately, a great web host is one that provides a professional and reliable service that gives you maximum uptime and peace of mind at a fair price. For most website owners, it is preferential to work with a website host that has operated for several years - although plenty of good newer hosts do exist. Additional Tips To Bring Down the Cost of Your Web Hosting Services In the grand scheme of things, a few extra dollars for your web hosting services definitely go a long way. After all, compared to renting a brick-and-mortar store, this overhead is likely to be quite small. Nonetheless, you should still seek value for money (without compromising on quality), not least because the savings can be invested in other parts of the business.  Here are 10 quick tips that will help you keep your website hosting rates to a manageable level: Opt for a longer hosting plan. A 12, 24, or 36-month plan will offer a significant discount compared to a monthly fee. Choose the right web host on the first attempt, as switching can cost you a few hundred dollars. Where possible, bundle domains, email inboxes, and other related services. But get rid of any services that you won’t use or already have in-house teams for, such as SEO. If choosing a flexible plan, start with the lowest option right now - at least during the website building phase. Get smart with optimized images and cache static pages to keep storage requirements down. Look for free incentives like Google Ads vouchers that can give you extra value for money in the long run. Speak to the company’s advisor to see what package they can build around your needs, but avoid their upselling strategies. Know the customer support lines. Calling premium toll numbers could cost you a fortune compared to free web support. Finally, look online for discount codes or consider waiting for the next big sale like Black Friday or summer sales. The Final Word on the Cost of Website Hosting Ultimately, the website hosting cost is merely another expense that doesn’t increase your overall outgoings by a significant amount. With the right host provider behind your brand, it’s one of the most valuable investments you’ll ever make. Nonetheless, you should seek the best hosting rates to satisfy your immediate requirements while maintaining the flexibility to upscale or evolve as the business grows. Choose the best web hosting for your needs, and the World Wide Web will be your oyster.
By Vladana Donevski · May 10,2022

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