In a different article, I wrote about how charities run. I briefly highlighted the similarities and differences between public charities and private foundations to explain how each handles different tasks, or how each is constructed and organized. In this article, I will go a little more in-depth about what goes into choosing one over the other, and creating as well as running them. However, the classification and operation of each organization is subjective. It is more important to really analyze your programs, intentions, and plans.
Public charities make up most of the running 501c3 organizations. Most people have public charities in mind when they have aspirations or knowledge of charitable organizations. Public charity has a better ring to it than private foundation, so to speak. When most people think of public charities, they think of goodwill and authenticity. When people think of private foundations, they may think of a group of people who take advantage of the work they should be doing, and the people they should be serving. This is not the case, because not every public charity does as well as they should, and not every private foundation is caught doing something bad. However, creating a public charity as opposed to a private foundation provides the organization with tangible benefits, and it is not just about stigma or image. Financially, public charities are able to use higher donor tax-deductible giving limits and three possible tax filing requirements depending on your revenue. Due to the positive feelings people have towards the idea of public charities, they can also get support from other public charities and private foundations, as well as smaller individual donors. Examples of charities are: churches, homeless shelters, and privates schools etc.
Form 990-N e-postcard
- People have to specify why their organizations should be considered public charities as opposed to private foundations.
- Public charities must have a board of directors that are representative of public interest. Half of them should not be related by blood, marriage, co-ownership. They cannot be compensated as employees.
- Public charities must be supported by the public. In other words, 33% of the revenue should come from small donors, other public charities, and the government. The rest of the money should come from other sources.
Sometimes, “private foundation” is a title that is given when people cannot prove that their organization is a public charity. However, most people who run private foundations want their foundations to be considered private. There are a myriad of reasons for why someone, or a group of people, might want their charity to be considered private. One of these reasons is that you have more power as leader(s). Although they have less giving limits, mandatory Form 990-PF filings, private foundations can be funded and controlled by a small related group of donors.
- All private foundations have to have Form 990-PF filings
- An organization should be considered private foundations if they exist to support other public charities as opposed to specific charitable programs.
- There is a subset of private foundations that is a hybrid of private foundations and public charities. They are called private operating foundations.
- Rules are strict for private operating foundations but they receive some of the benefits of a public charity.