Question

Define and differentiate between public, private,nonprofit and private, for-profit organizations. What are the key differences

Answer 1

A public nonprofit organization is also known as a public charity.

A private nonprofit organization is also known as a private foundation or a nonprofit foundation.

A non-profit, on the other hand, is an organization that has been set up for some purposes other than making a profit, usually a charitable one.

Being Considered a Public Charity

There are three qualities, either individually or severally that qualify an organization to be considered a public charity.

It has broad public support

A charity is considered a public charity if it has broad public support. That means if the public supports the organization through material donations like money and other resources, then the organization is a public charity.

By that definition, it would seem a lot of organizations that we wouldn’t normally consider charities are actually charities.

Public Charities:

Public charities have all sorts of missions, including advancing education, the sciences, or religion, or helping ease poverty or tensions that may exist between different communities.

At the very heart of it, a public charity is either one which derives most of its support, material or otherwise, from members of the public, or happens to exist and function solely to support another charity or charities.

Private Nonprofit Foundations

The definition of a private foundation is somewhat circular, according to the IRS. Basically, a private foundation is a charitable organization that does not qualify as a public charity. When private nonprofits are established, they derive their funding from private sources, such as corporate money, or an individual’s wealth or family wealth or something like that.

The contributions made to a private foundation are indeed tax deductible. However, most private nonprofits actually neither solicit nor accept donations from members of the public. What they do is they take the principle with which they were established, invest it in some economic ventures, and then distribute the profit or income obtained from those ventures for charitable purposes. Many such nonprofits actually have endowment funds.

Private for-profit organizations:

A private for-profit organization exists primarily to generate a profit, that is, to take in more money than it spends. The owners can decide to keep all the profit themselves, or they can spend some or all of it on the business itself.

Or, they may decide to share some of it with employees through the use of various types of compensation plans, e.g., employee profit sharing.