Public Charity vs. Private Foundation vs. Private Operating Foundation

So, you're either thinking about starting a 501(c)(3) charitable nonprofit or you're already in the process of doing so. One of the things you're going to have to decide on is what "type" of 501(c)(3) it needs to be. Now, some of you might be thinking, "I thought a 501(c)(3) was a 501(c)(3)?!" Not exactly. There are three primary types: public charity, private foundation, and private operating foundation. And the choice you make greatly impacts how your nonprofit is structured and how it operates.
📚 ADDITIONAL RESOURCES:
•ARTICLE: "Nonprofit Structure: Public Charity, Private Foundation, or Private Operating Foundation?" bit.ly/3Gp3JQ2
•ARTICLE: "Public Charity vs. Private Foundation" bit.ly/3L4hWFs
•ARTICLE: "Private Foundation vs Private Operating Foundation: Understanding the Key Differences" bit.ly/3IVWCzW
📱 Check out our Understanding the 501(c)(3) Public Support Test video at • Understanding the 501(...
🏆 YOUR NEXT STEP:
•Fill out this form for a FREE consultation on how to start a nonprofit: bit.ly/3Tu9nYE
•Register for Fundraising TV: www.501c3.org/fundraising-tv/
•Download the FREE eBook “10 Things You Need to Know Before Starting a Nonprofit” bit.ly/3XhFag0
0:00 Begin
0:51 The Public Support Test
1:01 What is a Public Charity?
1:55 The Purpose Test
3:00 The Organizational Test
3:51 What is Inurement?
4:16 The Public Support Test
4:51 What is a Private Foundation?
6:45 What is a Private Operating Foundation?
7:45 Why a Private Operating Foundation is “Hybrid” Reason: 1
7:58 Why a Private Operating Foundation is “Hybrid” Reason: 2
8:10 Why a Private Operating Foundation is “Hybrid” Reason: 3
8:20 Why a Private Operating Foundation is “Hybrid” Reason: 4
8:50 How are Donations Treated?
9:52 Conclusion

[@FoundationGroup]

If you need help filing for IRS 501(c)(3) status, we’d love to help! You can fill out our contact form at bit.ly/3i6rFxz or give us a call at 888-361-9445.

[@hyojinlee]

Thank you for this video!

[@joythompson200]

Very informative and easy to understand

[@GotbStudios]

Thank you for sharing

[@johnniecouncil8773]

WOW!!! Thank you so much. This was extremely helpful. The taxes is a beast for private foundations. If you have any tips for this, I would greatly appreciate it. Thank you again.

[@mississippiapple1078]

thank you!

[@BurnforGod]

Very informative and clear

[@shannonwaters-mitchell2600]

Thank you

[@JonathanStitt-wz5py]

Great video, very informative.. thanks bro 💪🏾💯

[@FoundationGroup]

Thanks for watching!

[@zachritschard8337]

Thanks

[@virlvideo2269]

Great Video! I was wondering can an LLC, trust, or S-Corp be on the Board of directors for a public charity, or private foundation.

[@FoundationGroup]

Most states' corporate law requires officers and directors to be actual living people. It is possible, however, that an entity that is an LLC, trust, or corporation might have a permanent representative on the board of a nonprofit. You see this sometimes when a company forms a related nonprofit and permanently reserves (via the bylaws) spots on the board for company representatives.

[@june.5082]

Really enjoy your presentation! Like to open a private operating foundation, but are there more requirements? For example, how much is required for the initial putting in? Is it possible to put in money gradually?

[@FoundationGroup]

There's no minimums when it comes to putting money in, so doing so gradually can work. However, there are strict rules regarding expenditures and investments. Of the 3 primary types of 501(c)(3), the private operating foundation has the strictest rules/tests. They're a bit more difficult to get approved because of that, and somewhat more burdensome to maintain. Failing to maintain the numeric standards can result in the operating foundation being reverted to a standard foundation. Not the end of the world, but it is disruptive. When you're ready to get started, let us know. We can help you set it up right, and make sure that a POF is even the best fit for you.

[@june.5082]

@@FoundationGroup I sincerely appreciated your response and knowledge. I called Greg for a further direction, and am waiting for his call back when he has a chance.

[@nemuelm.rejuso4376]

Can you give me an example of Public Charity please?

[@davidhudson5632]

I would like to ask a question?

[@stevewilliams6759]

How much would your company charge for managing numbers for a small start up private operating foundation

[@jpf7007]

They never answered? You found help?

[@mwmsf1]

Is fee-for-service revenue included in the public support test? - if its supporting the organization's mission?

[@waynecmontgomery]

If your organization is a 509(a)(2) (public charity)" fee for service" is counted. If you are a 509 (a)(1) public charity, the fee for service or program revenue does NOT count towards the public support test. If your organization has the majority of its money from program revenue you MAY want to think about checking box 10 in Part 1 Schedule A 990/EZ ( reason for public charity status). And then you will need to fill out Part III of Schedule A. However be aware of certain rules under 509(a)(2). Also, there is NO FACTS AND CIRCUMSTANCES test for the 509(a)(2) support test and you must have limited investment income. **Special note my recommendation is only do 509 (a)(2) if you are NOT going to make the 509(a)(1) test.****

[@mwmsf1]

@@waynecmontgomery Thanks! No, we are a 501c3 similar to another Mass Design Group who also has significant Fee for Service Revenues

[@waynecmontgomery]

@@mwmsf1 As a former tax attorney in this area I would advise if you go the 509(A)(2) route to pass the public support test keep in mind you can NOT have more than $5000 K from one customer or donor. Anything in EXCESS of 5K will not be counted towards the public support test as far as 509(a)(2) goes. Also, be advised donations from DISQUALIFIED persons ( Please see IRC section 4946) within the organization are NOT counted at all towards the public support test.

[@FoundationGroup]

We're a little late to this conversation, but we concur that fee-for-service revenue adds to the public support test in a 509(a)(2). To add to Wayne's statement about gifts over $5,000...that does not include gifts from other 501(c)(3) public charities or government agencies. Grants from either of them, regardless of size, count toward public support. As counter-intuitive as it might seem, a public charity could, in theory, have a single donor and still pass the public support test, assuming that donor is one of the two types above.

[@nemuelm.rejuso4376]

Can u give me a Public Charity example???

[@FoundationGroup]

A church, the Red Cross, a private school, a cancer research charity...these are all types of nonprofits that would most likely organize as a public charity. Think of it like this: a 501(c)(3) with active charitable programs will most likely be a public charity.

[@KD-eq2ch]

Is there a minimum amount of funds needed to start a private foundation?

[@FoundationGroup]

There's no regulatory minimum, but practically speaking you may wish to consider the cost/benefit ratio of starting really small. Given the cost of formation and ongoing compliance, a foundation with less than $50,000 really makes no sense. The ideal minimum might be closer to $100,000, but that is totally subjective. We've set up foundations for people who were going to start with only $25,000 or so. It's not right/wrong issue.

[@jamiehardin2372]

Can I ask if me and a group of ladies are trying to start a woman’s group which way should we go if we’re not asking them for money we would like other people to help donate to our cause to help other women

[@FoundationGroup]

We'd have to know more about what you're planning, but for any nonprofit that plans to seek donor support, a public charity is usually the right option.

[@nemuelm.rejuso4376]

Please

[@joesshadow]

What is a good example of a private operational foundation that exists today?

[@FoundationGroup]

It's not unusual to see some museums or similar organizations set up as private operating foundations...closely held from a board structure, but providing programs to the public. The largest private operating foundation currently in existence today is the J. Paul Getty Trust.

[@hanes0092]

If I were to create a public charity Could I still have “foundation” in the charity name?

[@FoundationGroup]

Yes, absolutely. Many of the so-called "foundations" you see out there are really public charities.

[@kerenferrisandco]

Can you provide money to an international nonprofit through a private foundation?

[@FoundationGroup]

Absolutely. You just need assurance through expenditure accountability reporting that the recipient foreign charity is using the money for qualifying purposes.

[@rebel_infinity7326]

People have been conditioned to believe that they must seek the permission of other men

[@grayrecluse7496]

There is no such thing as a nonprofit!

[@FoundationGroup]

Hmm...Ok. Thanks for playing, though.

[@grayrecluse7496]

@@FoundationGroup Guess that went over your head.I'll dumb it down, when you hire your family and friends to work in the "nonprofit". When you travel first class , or private planes, not nonprofit.... Many many more things to bring up.

[@FoundationGroup]

Nope, not over our head. Just amazed at the continuing bias and misinformation that is pervasive about nonprofits. There are bad actors in every industry. People manipulating situations for personal gain is pretty universal. Most people don't know that nearly 80% of recognized 501(c)(3) organizations bring in less than $50k annually. They are your local animal rescue, food pantry, or kids' soccer club. Not many of these volunteers are jetting off to Aruba on the company dime. Is there abuse in the nonprofit space? Sure...and there are laws to deal with it, same as for any other crime. But to claim that nonprofits are primarily for the enrichment of those who run them just has no basis in fact. Most new nonprofits fail in the first 5 years because they aren't successful in generating donor support. Their founders fund it personally until they just give up and move on.

[@grayrecluse7496]

@@FoundationGroup So,red cross isn't for profit? Blood banks aren't for profit? The clinton foundation wasn't for profit? 501c3 is for profit. Why, don't you pay taxes on money the so- called nonprofit gets,so they get more profit. I don't believe we should pay any taxes? We should help people out of our own pocket and then leave, nothing said, but have a good day or night. But nonprofit's don't do that,they beg in door way, on tv, radio, school's parking lots. Do you see my point? The one's going broke were either criminal organizations or just not run by smart criminals. ... Just my opinion.