In your research about nonprofits, you may have seen the term “fiscal sponsor.”  But, what is a fiscal sponsor?  How do you know if you need one?  Where do find one?

Starting a new charity or foundation always involves a lot of up-front work.

Some charities chose to go straight for nonprofit status, doing the difficult work straight from the beginning. For others, including first-time foundation owners and uncertain charity ideas, obtaining a Sponsor may be a better idea.

What is a Fiscal Sponsor?

A Fiscal Sponsorship happens when a major, established nonprofit takes a new charity or foundation under its wings for a period of time.

The established nonprofit, known as the Fiscal Sponsor, may provide staff and office space for the new charity right off the bat. They may also fund the work or accept donations in their name (or maybe both). They can fill out paperwork, meet with donors, and do the heavy lifting every step of the way.

Is a Fiscal Sponsor Right for Us?

Obtaining a Fiscal Sponsor could be a good idea for risky or revolutionary charity ideas that feel uncertain at the outset.

Sponsorship is also useful when your organization is not yet ready to apply for IRS tax-exempt status but wants to obtain charitable donations.  The Sponsor accepts the charitable donations on your behalf and passes them through to you.

If you are not sure if your foundation will be sustainable for years to come, a Fiscal Sponsor can protect you while you see that idea out. They will help manage your books and make sure your business remains compliant with local and federal regulations.

And, while we don’t like to admit it, brand names sell.  Sometimes, the Sponsor’s reputation (brand) provides value to new organizations and opens doors that would otherwise be closed.

Finally, fiscal sponsorships are ideal for projects of a short duration.  It is often more economical – and a wiser use of resources – to partner with a sponsor rather form a corporation with an intentionally short lifespan.

Two Types of Fiscal Sponsorship

There are two main types of Fiscal Sponsorships, although plenty more exist.

In a Comprehensive Fiscal Sponsorship, your Sponsor will include you within their nonprofit organization and take care of you in every necessary way.  They are fiscally and legally liable for the actions of the project.  In return, they will own your project.

In a Pre-approved Grant Relationship Fiscal Sponsorship, your Sponsor will allow you to remain a separate entity but pay you a set amount for funding.  It is similar to a grantor-grantee relationship.  Some organizations prefer this model because they enjoy more autonomy but they also take on greater administrative and legal duties.  

But, Nothing in Life is Free. . .

As you can see, there is one potential downside to Fiscal Sponsorship. Your Sponsor will often have the ultimate say about your sustainability and any major decisions the foundation faces.

In most cases, they will legally own your charity as well.

For most new foundations, however, the benefits far outweigh that consequence.  Still, you must carefully weigh the decision before jumping into a fiscal sponsorship.

How to Find a Fiscal Sponsor

So how can you obtain a Sponsor? They are in high demand.

Make the connection with one yourself, the old-fashioned way.

Apply for Nonprofit Incubator programs, where Sponsors compare several new charities to see which to sponsor.

Check out any local outreach programs or nonprofit support organizations to see if they can help make a connection for you.

Finding the right match of Sponsor and foundation idea can be difficult.

 

For many new charities, finding a Fiscal Sponsor can be a great idea. For practical advice for nonprofit organizations, contact Concerto Law today! We can help you discover legal solutions that break through the noise of bad internet advice.