What is Fiscal Sponsorship
- Fiscal sponsorship refers to the practice of nonprofit organizations offering their legal and tax-exempt status to groups engaged in activities related to the organizations’ missions. This is facilitated by a fees based relationship between project and sponsoring organization.
- Fiscal sponsorship provides an attractive alternative by enabling projects to share a common administrative platform & take advantage of a legal entity structure in an efficient manner
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- Bypass delays and costly process of creating an organization with infrastructure that would qualify for grant support and other tax exempt contributions.
- Leaning in to existing infrastructure and established administrative systems give project leaders bandwidth to focus on the project mission, and producing high quality outcomes while keeping costs low.
Services Potentially Provided
- Fiduciary Oversight
- Financial Management
- Administrative Services
- Legal Status
- Employee benefits
- Office space
- Fundraising assistance
- Training Services
Models of Fiscal Sponsorship
- Project and sponsor are single legal entity
- Sponsor acts as umbrella and has control over project
- Project administrators and leaders become employees of sponsor. Sponsor becomes responsible for receiving tax exempt donations and allocating funds to project, as well as undertaking full legal liability for actions of project. In exchange for the assistance provided the sponsor usually will receive a small portion of the annual project revenue.
- Sponsor becomes grantee to the entity carrying out the project. Grant relationship emerges where mission goals are compatible, sponsor and grantee maintain separate legal entities. In order for funds to be transferred, the sponsor will accept tax exempt funds and convey them to project administrator as small grants. In this case, regularly scheduled reporting outlining grant funding usage will be required of the project entity. Project liability and project result ownership remains almost entirely under project entity, this model is particularly useful for projects dealing with intellectual property as they will maintain ownership of said property. However the fiscal sponsor must retain “variance power” or independent “discretion and control” over the fiscally sponsored project for the relationship to pass IRS regulation. Most commonly, sponsor will retain a portion of initial funding as payment.
What should projects expect of fiscal sponsorship?
Depending on the model of sponsorship chosen project admin can expect different levels of engagement form. In most all models of partnership the sponsor can expect some level of fiduciary oversight/financial management, administrative services, as well as legal status. Each relationship will differ based on pre established agreements that the partners should have in place before any formal relationship contract is established.
When is the right time to approach a fiscal sponsor?
After establishing a program plan and conducting initial funding research to assure fiscal sponsorship is the right fit for your company and project goals. Project administrators will want to contract with a fiscal sponsor before pursuing donations or soliciting support from funders.
When does fiscal sponsorship make financial sense?
Pursuing incorporation or 501(c)3 nonprofit standing will rack up substantial costs rather quickly for the project. Typical funding for projects just getting started will often struggle with having enough bandwidth to take on the costly process of either of those options. In this type of case, pursuing shared nonprofit status as well as other administrative costs and cutting down time that would be lost from application process of incorporation.