The Difference between Nonprofit Organizations and Foundations

Difference between Nonprofit Organizations and Foundations

The Difference between Nonprofit Organizations and Foundations

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If you’re not privy to the nonprofit world, you may hear Foundations and Nonprofit and think they are synonymous. In actuality there are a number of differences between the two and as professionals in both nonprofit and foundation staffing, we are here to answer all of your questions and describe the primary differences between the two of these associations.

What is a nonprofit organization?

According to Foundation List, a nonprofit is meant to describe a nonprofit organization not operating primarily to make a profit. Instead, it an organization whose mission focuses on furthering a social cause or a shared goal or mission. A nonprofit organization is one where the excess money it makes fuels the organization’s mission. Employees of a nonprofit still get a salary and regular income (excluding the volunteers), but they don’t benefit from run-over profits if the organization turns out to be successful. The money goes toward what that organization set out to do.

Nonprofit organizations receive money in the form of donations from the government like government grants, private donors, and other institutions in order to fund their mission and other expenditures. Nonprofits are tax-exempt organizations and can serve settings including research, religion, and education. Some examples of nonprofit organizations include the Boy Scouts of America, the Better Business Bureau, and the American Civil Liberties Union.

Are charities different from a foundation?

Another form of nonprofits are charities. Charities and foundations are not the same, but they are both considered to be a nonprofit entity and have tax-exempt status. While both are considered to be nonprofits in the eyes of the Internal Revenue Service, charities are not considered to be private foundations.

What is a nonprofit foundation and how is it different from an organization?

A foundation is an organization that did not qualify as a public charity. They are very similar to nonprofits, except money for a foundation usually comes from a family or a corporate entity, whereas nonprofit money often comes from their revenues and other donors. Some examples of foundations are the Kellogg Foundation and the Ford Foundation.

Difference between charitable organizations and private foundations

The term ‘charitable organization’ is used by the IRS to refer to any organization that meets some basic requirements. It is a legal term meaning that the organization has been granted tax exemption under Section 501(c)(3) of the Tax Code. There are two kinds of exempt entities: private foundations and public charities. Private foundations must meet additional criteria to become eligible for this tax exemption. Public charities are allowed to operate without meeting these additional requirements.

A public charity is a charitable organization that can be defined as such if it is supported by the public people and serves a public benefit, exists to support a separate charity, or exists to measure public safety features. They can range from hospitals and other medical research organizations, universities and other educational organizations, and churches or other religious organizations. All donations made to these are completely tax-deductible.

Other examples of these types of organizations can include social clubs, sports clubs, and homeless shelters. They do have to adhere to very strict rules when it comes to their federal tax exemption.

Operating and Nonoperating Foundations

It’s technically possible to donate money to private foundations, but many foundations won’t accept it from private individuals. As an alternative, they’ll take the money they started out with, invest it, and then distribute the money made from those investments. Foundations will also donate these funds to other nonprofits in the form of gifts or grants. Moreover, there are two types of foundations:

– A private nonoperating foundation grants money toother charitable organizations. These foundations often do not directly perform any charitable programs or services other than grant-making.

– A private operating foundation distributes funds to its own programs that exist for charitable purposes.

These foundations need to pass certain tests from the IRS over a period of time to determine whether or not they can retain their tax status. These tests include tests for income, support, assets, and endowment.

-Income test: Foundations cannot operate without satisfying the income test. It requires that the foundation spends at least 85% of its adjusted net income or its minimum investment return directly for the active conduct of its charitable activities.

-Support test: Foundations can meet the support test if one of these three things occur. If at least 85% of its support other than gross investment income is normally received from the general public and five or more unrelated exempt organizations, not more than 25% of its support other than gross investment income is normally received from any one exempt organization, and no more than 50% of its support is normally received from gross investment income, the foundation will pass this test.

-Assets test: Foundations can pass the assets test if 65% or more of its assets are devoted directly to the actively conducting public programming, a related business, or a combination of the two; consists of stock of a corporation that is controlled by the foundation and at least 85% of the assets of which are so devoted; or any combination of those two requirements.

-Endowment test: In order to pass the endowment test, the foundation must make qualifying distributions of at least two-thirds of its minimum investment return directly in actively conducting programs that benefit the public. If a foundation passes the income test, they will normally pass the endowment test.

 

Scion Nonprofit Staffing can help you with your nonprofit staffing and recruiting needs.

 

As you can see, there are many differences between a foundation and nonprofit, but they both are integral to serve the greater needs of communities. To learn more about working with foundations and nonprofits, contact the nonprofit recruitment experts at Scion Nonprofit.

We have industry experts who are well-versed in both staffing and recruiting for a wide variety of nonprofit positions for organizations all over the continental United States. Scion Nonprofit Staffing specializes in placing experienced, mission-driven nonprofit staff members from the entry-level to the executive level. Our search firm was specifically designed to meet the need of the nonprofit sector and effectively provides our devoted clients with top-notch nonprofit talent pipelines and human resource services. Contact us today to get started!