Private Foundation Vs. Public Charity: Key Differences Explained

What makes an organization charitable? Many people might point to its mission, its impact on the community, or how much it gives back. But for those working behind the scenes in the nonprofit world, the real marker is often more technical: being recognized by the IRS as a 501(c)(3) organization. It’s not the flashiest answer—but it’s a critical one.

However, even within the 501(c)(3) category, there’s an important distinction that anyone working with or within nonprofits needs to understand: the difference between a private foundation and a public charity.

What Is the Difference Between Private Foundations and Public Charities?

There are key differences between private foundations and public charities with respect to their source of funding, operational focus, governance and public support test, IRS reporting, and payout requirements. 

Sources of Funding

An organization qualifying for public charity status will be drawing their donations from multiple sources, such as individuals, grants, and other public contributions. An example would be a community food bank that is supported by local donors, private grants, and product donations. 

Private foundations are typically funded by a single source—such as an individual, family, or corporation. They usually do not actively solicit funds from the public. An example is the Gates Foundation, which is primarily funded by Bill and Melinda Gates.  

Operational Focus

Next, let’s crack open these two entities to see what makes them tick. 

The operations of public charities tend to be more complex, as they have to seek out and manage funds coming in from a wide range of donors and run programs to support their missions.  Private foundations, however, primarily make grants to other public charities rather than operate programs themselves. 

Governance and Public Support Test

A public charity must meet an IRS “public support test” to maintain its status. This means it must receive a substantial portion of its support from the public. Again, this could be from fundraisers, donors, or government and private grantmakers. 

To pass the public support test, a public charity must:

• receive at least one-third of its total support from the public (donors, government grants, and other public charities) over a rolling five-year period; OR,
• if it doesn’t reach one-third, it can still qualify if it receives at least 10% and meets certain facts-and-circumstances that demonstrate it functions like a public charity (like being open to the public, having a diverse board, etc.).

A private foundation is not subject to the public support test. Its status is generally based on its source of funding and governance structure. 

Governance and Control

A public charity files the IRS Form 990, which includes information on income, expenses, and programs. A private foundation, however, files the IRS Form 990-PF (for private foundation), which includes more detailed disclosures, including a list of all grants made, assets, and investment income. 

Payout Requirements

A public charity has no mandatory payout requirements. A private foundation must distribute at least 5% of its assets annually for charitable purposes. 

Examples of Private Foundations and Public Charities

Often the best way to learn is by example. And when it comes to private foundations and public charities, the United States is blessed with plenty of such examples. Many of these are so successful that they’ve had a global impact. 

Examples of Public Charities

1. American Red Cross: American Red Cross is a well-known charity that focuses on emergency assistance and disaster relief in the U.S. and beyond. However, it's not just a reactive charity, but also focuses on training, certification, and education. It’s also well known for its blood drives, which you may have seen in your own local area, or even contributed to.
2. Habitat for Humanity: Habitat for Humanity is a global charity that helps provide affordable housing for families with low incomes. It’s notable because much of its assistance comes not just from charitable contributions, but from volunteer workers who help with the actual construction of the homes.
3. Feeding America: There are many charities, local and global, that help to provide food for those that are food insecure. Feeding America helps feed millions of people each year, and advocates for policies that address hunger. 

Examples of Private Foundations 

1. Gates Foundation: For many, this is the first example that springs to mind when thinking of private foundations. Established by Bill and Melinda Gates, it has an endowment of roughly $75 billion as of 2023, making it the largest private foundation in the U.S. This foundation demonstrates how the interests of the founder can take such a charity in multiple directions. This private foundation in particular focuses on global education, health, and poverty alleviation.
2. Walton Family Foundation: Created by the heirs of the Walmart fortune, the Walton Family Foundation is an example of a private foundation with a local focus. This charity focuses on education, environment and development within Arkansas and Mississippi, reflecting the Arkansan origins of the family.
3. Mastercard Foundation: This private foundation is a great example of when a corporation serves as the founding entity. This international foundation focuses on education and financial inclusion, particularly in Africa. 

How Private Foundations and Public Charities Work Together

We’ve spent a lot of time comparing public charities and private foundations—but it’s not about one being better than the other. In fact, it’s not a competition at all. These two types of nonprofits often collaborate in powerful ways, each bringing unique strengths to the table. Together, they can accomplish what neither could achieve alone.

Here are a few examples of how they can work in partnership:

1. Grantmaking Partnerships

Private foundations often give grants to public charities for the purpose of supporting a specific program or initiative. For example, the Bill & Melinda Gates Foundation has given grants to other charitable organizations we touched on, like Feeding America and Habitat for Humanity. These charities generally align with the Gates Foundation’s desire to alleviate poverty. This way, the private foundation serves as the fuel for the public charity, and both make strides towards their goal.  

2. Co-Funding Initiatives

Some challenges are simply too large for a single organization to tackle alone. But when public charities and private foundations join forces, they can create an outsized impact—far greater than either could achieve on their own. By combining the reach and programs of public charities with the resources and strategic funding of private foundations, they’re able to address global issues at scale.

3. Capacity Building

In some cases, a private foundation can strive to not only help a public charity with a particular project, but with their overall growth. This “capacity building” gives charities the tools to tackle more than they were previously able. This could be by providing better technology and equipment, or greater staff training. The Walton Family Foundation we mentioned above is noted for its grantee capacity-building practice. 

4. Program Development

Public charities have quite a lot to offer private foundations. We mentioned above how public charities often have the edge in local expertise, working closely with communities. This information can be invaluable to a private foundation looking to start an ambitious project. Combining knowledge and funding together can quickly get the initiative off the ground. 

5. Advocacy and Policy Change

We touched on the fact that advocacy is a major part of strategic work for many public charities. An influential private foundation can make a significant impact on advocacy, especially if it pools its efforts with public charities. A great example of this would be how the Ford Foundation, a private foundation, has funded charities that shares its human rights advocacy goals.

Understanding the distinction between public charities and private foundations isn’t just a matter of tax codes or technical definitions—it’s essential for anyone working in, funding, or partnering with the nonprofit sector. While their structures, funding sources, and regulatory requirements differ, both play vital roles in advancing social good.

Rather than operating in silos, public charities and private foundations often thrive through collaboration, each contributing unique assets—whether it’s grassroots reach or strategic funding. Together, they help tackle complex challenges that no single entity could solve alone.

As you engage with the nonprofit world—whether as a donor, leader, or partner—knowing how these two types of organizations function can empower you to build smarter strategies, forge stronger partnerships, and drive greater impact.