You are operating a private foundation if your financial backing comes mostly from private sources, like a few private individuals, a handful of families or a couple of corporations. You are running a public charity if you are supported by the general public financially and in terms of manpower.
The differences between the two are distinct, and each foundation must be categorized into either one of the two for tax purposes. So what are the main differences between the two? For one, there is more public scrutiny when it comes to public charities, which is a good thing because it makes public charities more transparent and ensures that the charity is doing its job properly and honestly. This is especially important considering government organizations are more lax towards public charities compared to private organizations.
Private foundations are subject to strict federal laws, which have been put into place since 1969. These regulations are meant to prohibit self-dealing and limit the number of shares that can be acquired in any single company. It is meant to regulate financial transactions between the private foundation and its officers and contributors.
While not as strict with public charities, the federal government has now decreed that public charities adhere to the same rules that private foundations are subject to, especially when it comes to payments and grants to organizations and individuals.