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Public Charity or Private Foundation?

Is your nonprofit organization a Public Charity or Private Foundation?

Every nonprofit organization that qualifies for the 501(c)(3) exemption is either a public charity or private foundation.

public charity or private foundation - follow the moneyFOLLOW THE MONEY: Where does your financial support come from? For many nonprofit organizations, the main sources of financial support determine whether the organization will be classified as a public charity or private foundation. Generally, a public charity has a broad base of support while a private foundation has very limited sources of support.

PRIVATE FOUNDATIONS: Every organization that qualifies for tax exemption under section 501(c)(3) is a private foundation unless it falls into one of the categories listed under “Public Charities” below.

A private foundation cannot be tax exempt nor will contributions to it be deductible as charitable contributions unless its governing instrument contains special provisions.

There are several restrictions and requirements on private foundations, including:

  • Restrictions on self-dealing between private foundations and their substantial contributors and other disqualified persons;
  • Requirements that the foundation annually distribute income for charitable purposes;
  • Limits on their holdings in private businesses;
  • Provisions that investments must not jeopardize the carrying out of exempt purposes; and
  • Provisions to assure that expenditures further exempt purposes.

Learn more about the Life Cycle of a Private Foundation.

PUBLIC CHARITIES: These organizations are statutorily classified as public charities:

  • Churches
  • Schools
  • Organizations that provide medical or hospital care
  • Organizations that receive a substantial part of their support in the form of contributions from publicly supported organizations, from the government, and/or from the general public
  • Organizations that receive a significant portion of their support from contributions, membership fees, and from activities related to their exempt functions
  • Organizations that support other public charities

Learn more about the Life Cycle of a Public Charity.

If you need help with the legal documents involved in starting your new business or nonprofit organization, please contact a licensed attorney in your state.

ATTORNEY: Learn more about attorney Deborah L. Hardin.

SERVING: Cabot, Beebe, Ward, Searcy, Jacksonville, Lonoke County, White County, Faulkner County, and other central Arkansas areas. We also routinely serve out-of-state clients, who require representation in Arkansas.

DISCLAIMER: The information contained in this web site is intended to convey general information. It should not be construed as legal advice or opinion. It is not an offer to represent you, nor is it intended to create an attorney-client relationship.