Foundations are vital in supporting nonprofit organizations in funding various needs and projects throughout their organization and community. Typically, foundations are endowed with funds from individuals, families, or corporations who wish to make a positive impact and operate by distributing those funds to support causes such as community development, educational programs, and social services.

There are two primary types of foundations: public and private. Both aim to advance charitable missions, but operate under different structures and serve unique purposes.

1. Public Foundations: Fostering Community Support

A public foundation is a charitable organization that pools resources from diverse funding sources—individuals, corporations, government entities, and sometimes other foundations—to connect community needs with donor interests. They are crucial in mobilizing resources and supporting various charitable causes in a community.

Key Distinctions 

• Funding Sources: typically receive funds from individuals, families, the public, corporations, government entities, and sometimes other foundations.
• Charitable Priorities: address a broad range of community needs rather than a specific project or interest. 
• Operational Methods: distribute pooled resources to various initiatives, allowing for the impact to reach many different areas and causes.
• Regulation: Due to their significant public support and fundraising activities, public foundations are subject to rigorous regulatory scrutiny, including annual filing and reporting, to maintain transparency and public trust. 
• Examples of Public Foundations: community foundations, health foundations, and educational foundations.

Donor Benefits

• Gives donors the opportunity to support a wide range of causes.
• Allows donors to establish a Donor Advised Fund (DAF).
• Helps donors engage with a diverse community of other donors and stakeholders. 
• Donors aren’t responsible for a minimum gift amount, which gives them more flexibility.
• Because public foundations are considered a 501(c)(3) organization, any gifts a donor gives are tax deductible. As of 2024, deduction percentages are up to 50% of AGI for cash donations and 30% for most non-cash contributions.

Nonprofit Benefits

• Increased likelihood of receiving grants even though it is a competitive market.
• Allows organizations to prioritize the needs of their organization and their community.
• Typically, allow for flexible grant terms, though specific criteria may apply.

2. Private Foundations: Personalized Philanthropy

A private foundation is a type of charitable organization typically established and funded by a single individual, family, or small group of individuals. Unlike public foundations, private foundations rely on a substantial endowment provided by the founder(s) or ongoing contributions from the founding family.

Key Distinctions 

• Funding Sources: typically funded by individuals, families, or corporations, with a recommended initial investment of $1 million. 
• Charitable Priorities: focus on the specific philanthropic interests of the funding individual, family, or corporation.
• Operational Methods: manage their own programs or grantmaking to focus funds on specific initiatives. 
• Regulation: strict regulatory requirements, including payout requirements (typically distributing at least 5% of their assets annually for charitable purposes), rules against self-dealing for internal gains, and stricter tax forms. However, private foundations are not required to have the same public transparency that public foundations have. 
• Examples of Private Foundations: corporate, family, and individual foundations. Each may have one or several focuses, such as scholarships, environmental, or health-related initiatives. 

Donor Benefits

• Allows donors to align charitable activities with their personal or family values.
• Allows donors to directly control where the funding goes and how it is used. 
• Helps donors create a long-lasting personal legacy.
• They are considered a 501(c)(3) organization, any gifts a donor gives are tax deductible. As of 2024 deduction percentages are 30% of AGI for cash donations and 20% for non-cash donations. 

Nonprofit Benefits

• Private funding means access to potentially larger grants. 
• Allows organizations to build long-lasting relationships with the foundation’s leaders.
• Provides funding for long-term and innovative projects.
• Often funds projects to completion, and ongoing funding helps support the maintenance of projects. 

When to Consider Each Type

Public Foundations

1. If a donor wants to support a broad range of community needs or doesn’t have a specific initiative they are passionate about. 
2. If a donor wants to pool their resources with other donors to create a larger impact. 
3. If a donor prioritizes transparency and public accountability.

Private Foundations

1. If a donor desires to fund a specific project or initiative.
2. If a donor would like to have control over how the funds are used.
3. If a donor wants to establish a specific long-term philanthropic legacy.
4. When a donor is able to meet the minimum funding requirements (typically, a minimum of $1 million). 

Understanding the distinctions between public and private foundations helps donors and nonprofits navigate the philanthropic landscape. Each type offers unique opportunities and challenges, influencing how philanthropic goals are pursued and impact is achieved. By considering these differences, donors can make informed decisions, maximize charitable contributions, and contribute meaningfully to positive social change.