We have all come across the terms; foundation, nonprofit or charity in our daily activities. High chances are we use these terms inaccurately and interchangeably. Although all refer to organizations aimed at helping the less fortunate in the societies, they have differences based on how they are formed, governed and the source of funding, as explained below.
What is Nonprofit?
This is a charitable organization with a specific social goal that uses its revenues and surplus to fund its operations rather than benefitting the organizations’ members, shareholders, employees or leaders. The run-over profits are channeled further to its goals. Nonprofits receive donations from the government, foundations, institutions, and individuals, just to name a few. These funds are then directed to the set charitable work. They can operate in research, religious, education or even scientific settings, and are tax exempt.
What is Foundation?
This is a charitable organization that sources funds from its founders, which could be a corporate entity or a family. The money is then invested and the proceeds are channeled towards its charitable activities. Foundations also donate funds to other nonprofit organizations as grants or gifts. Although they do not qualify as public charities, some foundations receive donations while others do not.
Types of foundations include
- Operating foundations- This is a foundation that undertakes charitable work and distributes funds to its existing programs for charity, which must be in a sustaining and continuing fashion.
- Nonoperating foundations- As the most common type of foundations, this is a foundation that grants or distributes money to other charitable organizations.
- Private foundations- This is a foundation controlled and managed by a corporation, family or individual.
- Public foundations- These are foundations that rely on the private foundations, corporations and the government for funding.
Similarities between Nonprofit and Foundation
- Both are accountable to the founders, donors, volunteers and the community
- Both engage in charitable activities in societies
Differences between Nonprofit and Foundation
Definition
Nonprofit refers to a charitable organization with a specific social goal that uses its revenues and surplus to fund its operations rather than benefitting the organizations’ members, shareholders, employees or leaders. On the other hand, a foundation refers to a charitable organization that sources funds from its founders, which could be a corporate entity or a family.
Grants
While nonprofits do not make grants to other charities, foundations make grants to other charities.
Source of funds
Nonprofits get funding from the government, foundations, institutions, and individuals. On the other hand, public foundations rely on the private foundations, corporations and the government for funding while private foundations rely on an individual, corporation or family for funding.
Nonprofit vs. Foundation: Comparison Table
Summary of Nonprofit vs. Foundation
Nonprofit refers to a charitable organization with a specific social goal that uses its revenues and surplus to fund its operations rather than benefitting the organizations’ members, shareholders, employees or leaders. They derive their funds from the government, foundations, institutions, and individuals, and do not make grants to other charities. On the other hand, a foundation refers to a charitable organization that sources funds from its founders, which could be a corporate entity or a family. They may derive their funding from private foundations, corporations and the government or an individual, corporation or family. Both, however, remain important charitable organizations in societies.