What is a Private Foundation?

A private foundation is a non-profit organization that executes charitable projects to serve a good cause. This foundation is a non-governmental organization, otherwise called a charitable organization whose projects and finances are managed by its trustees or directors. The principal fund or primary donation of a private foundation comes from a single source, which can be a household, an individual or a corporation. Despite the charitable projects done by a private foundation, it is not the same as a public charity. A private foundation is called a 501(c)(3) organization by the Internal Revenue Service (IRS), this foundation is non-profit is is thereby tax exempt.

How is a Private Foundation Used?

A private foundation does not source funds from the public, rather, the primary fund or donation is invested in order to generate more funds with which its charitable projects are funded. The dividends or returns the initial donation (through investment), generates every year are used for financing different charitable activities of the foundation. Usually, private foundations are small organizations established for the purpose of serving a good cause. In the United States, the Bill & Melinda Gates Foundation is the Largest private foundation. There are other foundations with billions of dollars as assets.

IRS Classification

The IRS categorizes private foundations as 501(c)(3) organizations given that they enjoy tax exemption under section 501(c)(3). Not all private organizations belong to this category, there are some clear cut criteria that a private organization must meet before it is classified as a 501(c)(3) organization by the IRS. for example, private hospitals, schools, and businesses that use some parts of their earnings to fund god causes are not 501(c)(3) organizations. There are basic requirements that an organization must meet before the IRS treats them as 501(c)(3) organizations. The requirements are contained in section 501(c)(3) of the Internal Revenue Code. Despite that private foundation in the United States are tax-exempt, they are subject to excise tax which they pay on their net investment income. The IRS also levy taxes on foreign private foundations whose gross investment income comes from the United States. The IRS regulates the activities of private foundations and places certain restrictions on them. A private foundation that acts for personal interests rather than serving good cause can be restricted by the IRS.

Related Topics

• Business Entities (Intro)
• Why is studying business entities important?
• Considerations When Forming a Business Entity
• Holistic (Detailed) Overview of Setting Up a Business Entity
• What are Business Entities?
• What is a Closely-held vs Publicly-held Business?
• What are the main types of business entity?
  
• What are the primary characteristics of business entities?
• What is Creation of a business entity?
• Where to Form a Business
• Incorporating in Delaware
• Forming an LLC in Nevada or Wyoming
• Creating a Company Offshore
• Promoter
• Promoter Liability
• De Jure Corporation
• Ultra Vires
• Brassplate Company
• What is Maintenance of a business entity?
• What is Continuity of a business entity?
• Business Continuity Planning
• Buy Sell Agreements
• Shotgun Clause
• Winding Up
• Dissolving a Foreign Qualification
• What is the Ownership structure of a business entity?
• Joint Stock Company
• Parent Company
• Subsidiary Company
• Wholly-Owned Subsidiary
• Operating Subsidiary
  
• Holding Company
  
• State-Owned Enterprise
• Mutual Company
• Conglomerate
• What is Control of a business entity?
• What is Personal liability of owners of a business entity?
• Entity Theory
• Piercing the Corporate Veil
• What is Compensation of business owners?
• What is Taxation of a business entity?
• What is Sales & Use tax?
• What are payroll and self-employment taxes?
• What are the major characteristics of a Sole proprietorship?
• Uniform Partnership Act
• Uniform Limited Partnership Act
• Partnership Agreement
• At-Will Partnerships
• Responsibilities of Partners to the Partnership
• Silent Partner
• Funding the Partnership
• How are Partners Compensated
• Splitting Equity in an Industrial Partnership
• Terminating the Partnership
• Types of Partnerships
• What are the main characteristics of a General partnership?
• Tort Liability of General Partner
• What are the main characteristics of a Joint venture?
• What are the main characteristics of a Limited partnership?
• Family Limited Partnership
• Master Limited Partnership
• What are the main characteristics of a Limited liability partnership?
• What are the main characteristics of a Limited liability company?
• Forming an LLC
• Articles of Organization
• Operating Agreement or LLC Agreement
• Why You Need an LLC Agreement
• LLC Compensation of Members
• LLC Taxation
• Converting to an LLC
• What are the main characteristics of a Corporation
• Articles of Incorporation 
• What to include in the Articles of Incorporation
• Corporate Bylaws
• Exiting the Corporation
• Dissenter's Rights
• What are the requirements to be an S Corporation?
• Non-Profit Organization
• NonProfit Business Entities
• Private Foundation
• A Detailed Explanation of the Sole Proprietorship
• Taxation of Sole Proprietorship
• A Detailed Explanation of the General Partnership
• 50/50 Partnerships: Never a Good Idea
• Publicly-Traded Partnerships
• A Detailed Explanation of the Limited Liability Company
• A Detailed Explanation of the Corporation
• Keepwell Agreement (Letter of Comfort)
• Personal Service Corporation Definition
• A Detailed Explanation of the Non-Profit Entity
• Public Limited Company (UK)