In our video from last year, we went over the difference between a nonprofit and a not-for-profit organization. As a refresher, the two terms are essentially the same thing—nonprofit refers to the organization, while not-for-profit refers to the activities of that organization.
But what about the other subsets of nonprofits specializing in the art of “giving?” What’s the difference between a nonprofit vs charity, and how do foundations fit in? Sometimes it’s hard to intuitively know the difference between these organizations. Below, we’ll go over the basic nonprofit, then distinguish foundations from charities.
The extra money a nonprofit makes doesn’t go to the employees, instead fueling the organization’s mission. Employees of a nonprofit still get a salary (excluding the volunteers), but don’t benefit from run-over profits if the organization turns out to be successful. The money goes towards what that organization set out to do—if their mission is to feed the homeless, then the extra revenue will go towards buying more food, setting up events, operating soup kitchens, etc., rather than going into the pockets of those running it.
When it comes to a foundation, these are organizations that did not qualify as public charities. They are very similar to nonprofits, except with a foundation, the money usually comes from a family or a corporate entity, whereas nonprofit money often comes from their revenues.
It’s technically possible to donate money to private foundations, but many foundations won’t accept them. As an alternative, they’ll take the money they started out with, invest it, then distribute the money made from those investments. Foundations will also donate these funds to other nonprofits in the form of gifts or grants.
There are subsets of private foundations: operating and nonoperating. A private nonoperating foundation grants money to other charitable organizations and is the more common form of foundation. They don’t directly perform charitable programs or services either. A private operating foundation distributes funds to its own programs that exist for charitable purposes.
A public charity is a charitable organization that either:
- Is supported by the public,
- Exists to support a separate charity, or
- Exists to measure public safety features
Charities range from hospitals, universities to churches, and they exist to further the advancement of science, public health, helping the homeless, or what have you. Donations to these organizations are completely tax-deductible as well.