Introduction

If you're launching a mission-driven startup, choosing between forming a public charity or a private foundation is one of the most important decisions you'll make. While both structures qualify as tax-exempt under IRS Section 501(c)(3), they differ significantly in governance, funding, tax treatment, and regulatory complexity. Understanding these differences will help you design a nonprofit entity that supports your mission and scales your impact effectively.

Source of Funding

Public Charity: Typically relies on a wide range of public support — including donations from individuals, grants from other public charities, and government funds. To maintain this status, the IRS requires that at least one-third of total revenue comes from public sources over a rolling five-year period.

Private Foundation: Generally funded by a single donor, family, or corporate entity. Rather than fundraising, these organizations typically rely on investment income generated from an endowment to support their giving activities.

Governance and Control

Public Charity: Must be governed by a diverse board of directors. Most board members should be independent — unrelated by blood, marriage, or business interests — to ensure accountability and reflect public stewardship.

Private Foundation: Allows for tighter control. Founders can appoint family members or close colleagues to the board, making this a popular structure for those who want to retain decision-making authority over philanthropic activities.

Operational Focus

Public Charity: Usually operates its own programs — for example, running education initiatives, community clinics, or outreach events. These organizations are often more visible and directly connected with the populations they serve.

Private Foundation: Primarily serves as a grantmaker. Rather than delivering services, it distributes funding to public charities or projects that align with its mission.

Tax Treatment and Deductibility

  • Public Charity: Individual donors can deduct contributions up to 60% of their adjusted gross income (AGI).
  • Private Foundation: Individual deductions are limited to 30% of AGI. In addition, foundations are subject to a 1.39% excise tax on net investment income and are required to distribute at least 5% of assets annually for charitable purposes.

Regulatory Requirements

Public Charity: Files IRS Form 990 annually, disclosing financials and program activity. Must demonstrate ongoing compliance with public support requirements.

Private Foundation: Files IRS Form 990-PF, which includes detailed reporting on grants, investments, and operational expenses. Subject to more scrutiny and stricter regulations regarding self-dealing and allowable expenditures.

Pro Tip

If you’re unsure which model fits your goals, map out how you’ll raise funds and whether you want to run programs directly or support others doing the work. That distinction can help clarify which structure will best serve your vision.

Compliance and Restrictions

  • Public Charity: Must pass the public support test and operate in alignment with its stated charitable purposes.
  • Private Foundation: Subject to additional rules including restrictions on lobbying, self-dealing, and business ownership.
“The right nonprofit structure will align with how you raise funds, the kind of impact you want to create, and how closely you want to control your organization’s mission.” — Leticia Zecca Ross

Choosing the Right Structure

Public Charity: Best suited for founders who plan to engage directly with communities, run programs, and seek broad public support. This structure supports transparency, visibility, and community collaboration.

Private Foundation: A good fit if you want to maintain control, fund external programs, and build a legacy vehicle for your or your family’s philanthropic goals. You’ll have more privacy, but also more compliance responsibilities.

Next Steps

Before filing with the IRS or launching your mission publicly, talk with an attorney experienced in nonprofit formation and compliance. The right guidance can help you define your goals, evaluate the trade-offs, and set up a structure that empowers your startup’s success.

At Zecca Ross Law, we regularly support social entrepreneurs and impact-driven founders in making the right legal and structural choices from the beginning. Schedule a consultation to explore which 501(c)(3) path is best for your vision. We can help you:

  • Understand the structural and legal differences between public charities and private foundations
  • Evaluate which structure aligns best with your funding strategy and operational vision
  • Learn about the tax implications and compliance obligations for each nonprofit type
  • Get recommendations to help you decide which model supports your long-term impact goals

Contact us today to learn more.