The application process to obtain a 501(c)(3) non-profit status takes both time and money. Beyond questioning whether that’s even necessary to achieve your goals (it isn’t always the best path), you’ll still need to fundraise.
If you decide not to go the 501(c)(3) route, but still want to seek either grant funding from foundations or tax-deductible donations from individuals, a fiscal sponsorship may be your best bet.
What is fiscal sponsorship?
Fiscal sponsorship is an agreement between organization that has 501(c)(3) tax exempt status and an individual or organization that doesn’t have that status but is fundraising for grants and tax deductible donations. The organization that has 501(c)(3) status is the fiscal sponsor that agrees to accept the funding on behalf of the individual or organization, and is held responsible for how that money is handled.
Who is fiscal sponsorship for?
Fiscal sponsorship can be great for individuals or start-up organizations that either don’t have 501(c)(3) status or are waiting for their 501(c)(3) application to be approved. Fiscal sponsorship will allow you to fundraise for grants from foundations, which nearly always require that you be a 501(c)(3) in order to be eligible for the grant. It also allows you to solicit tax-deductible donations, which is a benefit for your donors. Fiscal sponsorship is particularly common for new organizations who are just getting started and for individuals and organizations that have pilot project they want to get off the ground.
What does the fiscal sponsor do for you?
First and foremost, the fiscal sponsor accepts funding and donations on your behalf. In plain terms, this means that the check will be made out to the fiscal sponsor, who will then distribute the money to you for your project. Depending on your agreement, the fiscal sponsor may also offer such administrative services such as tax return paperwork, bookkeeping, insurance, human resources, payroll, legal advice and submission of grant reports.
What should you look for in a fiscal sponsor?
Your mission, or the intention for your work, must not only align with the fiscal sponsor’s mission, it must also further their mission in some way. In practical terms, you’ll also want a fiscal sponsor who has the resources and the organization to responsibly handle your funding and get the money to you in a timely manner.
What are some of the benefits of working with a fiscal sponsor?
- It allows you to accept tax-deductible donations and grants without 501c3 status.
- It is a way to beta test your programming before committing to the process of applying for your own 501(c)(3) status.
- It is an efficient way to fundraise for a short-term or projects such as a documentary film or a a protest rally.
- A fiscal sponsorship can allow for a rapid response campaign to accept donations in an emergency situation.
- An aligned fiscal sponsor can provide thought partnership, guidance and networking. Some may even fundraise on your behalf.
- It enables you to focus your energy on your project and not on the administrative tasks of running an organization.
- Partnering with an established fiscal sponsor lends credibility and accountability to you and your work, particularly if your programming has no established track record.
And some of the downsides?
The primary downside is that the fiscal sponsor will take a cut. That cut can be either a flat administrative fee or a percentage of the funding you raise. Because the fiscal sponsor is legally and fiscally responsible for the funds, the fiscal sponsor can also exert a fair amount of control over how the project is implemented.
The extent of that control is something that should be clearly spelled out in your agreement.
What are the key points that both parties should agree on?
Your fiscal sponsorship agreement should always be in writing. A few key considerations you’ll want to pay close attention to during the agreement negotiation will be:
- What is the fiscal sponsor’s administrative fee or percentage?
- How and when will the funds be released to you?
- Who will maintain financial records and tax paperwork?
- What level of project reporting does the fiscal sponsor expect and when?
- Who will be responsible for any grant reporting requirements?
- What additional administrative support will the fiscal sponsor provide to the project?
- How will credit for the project be acknowledged?
- Who will own any intellectual property resulting from the project?
- What is the exit strategy for concluding the fiscal sponsorship?
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