Many people consider nonprofit organizations, public charities, and private foundations the same. However, this is not true. We often use these terms interchangeably without knowing that there is a fundamental difference between how they operate. Although all of them aim to bring a change in society through their efforts, they are different based on their formation, governance structure, and funding source.
If you’re planning to open one of them, it is advised to get the best nonprofit formation services available to help you understand the difference between them and determine what suits you best to serve your needs. Let’s briefly look at the difference between a private foundation and a nonprofit organization.
Nonprofits are charitable organizations with a specific mission to help the community. It uses revenues and surplus to help the organization run instead of providing its key stakeholders with profits. Any profit generated is reinvested in the organization to fuel the charitable cause.
Nonprofits usually receive donations from different organizations, including corporations, governments, and other institutions. The funds received help the nonprofit organization carry out the charitable work it intends to. Nonprofits can work in various settings, including scientific, research, or education. They are also tax-exempt.
Understanding Private Foundations
Private foundations are charitable institutions that get their funds from their wealthy founders. These founders can be a well-run corporation or a wealthy family. The money provided is invested in different areas, with the proceeds going towards the charity to carry out its activities. Private foundations can also donate to other public charities or nonprofit organizations. Some private foundations also receive donations, while others don’t.
You can have an operating foundation that undergoes charitable work and distributes money to its ongoing programs that are sustainable and intended to continue for the foreseeable future. On the other hand, you can also have a nonoperating foundation that merely distributes money to other organizations. Private foundations are often controlled by private companies or other wealthy individuals.
One of the key differences between a nonprofit organization and a private foundation is the source of funding. Nonprofits rely on external funding sources such as money from the government, private institutions, or individuals. They don’t generate their revenue. On the other hand, private foundations get their money from their founders, wealthy corporations, or individuals.
Nonprofits don’t make grants or donations to other charities, while private foundations engage in donation activities to other nonprofit organizations. Whether you want to start a nonprofit organization or a private foundation, your ultimate goal will be to engage in a charitable cause.
If you’re confused about which direction to take, it is worthwhile to hire the best nonprofit formation services to guide you in the right direction. A2Z Filings is a professional bookkeeping service in Florida that can assist you in creating a nonprofit organization.
We are experts in helping individuals and companies to start their nonprofit organizations. We can help you in nonprofit 501(c)(3) corporation document preparation, tax e-filing, and much more.