Fiscal sponsorship is a relationship between an established nonprofit and another organization or project that doesn’t have its own tax-exempt status just yet. In this arrangement, the fiscal sponsor provides administrative support that lets the sponsored project operate under its sponsor’s nonprofit status.
Organizations that might seek fiscal sponsors include:
Fiscal sponsorship lets younger, smaller initiatives benefit from the infrastructure of an established nonprofit. Instead of getting sucked into the process of starting an organization from scratch, they can focus entirely on their mission and decide if going the full nonprofit route is right for them.
Sponsors and their organizations often have similarly aligned missions, meaning the cause can only benefit!
Where corporate sponsorships provide financial support to nonprofits, fiscal sponsorships center knowledge and administrative resources.
A nonprofit fiscal sponsorship provides sponsored projects with:
Fiscal sponsorship can be temporary or ongoing, depending on the goals and structure of the sponsored project. Some projects may eventually seek their own tax-exempt status, while others may continue to operate under the fiscal sponsor.
Different organizations have different needs, which is why there are several different fiscal sponsorship models! Here, we’ll go over the three most common models.
As you read this section, we’ll refer to sponsored projects or organizations exclusively as “projects” to avoid confusion!
Comprehensive sponsorship essentially means that the nonprofit sponsor adopts the project as one of its own programs. This means that anyone involved in the project is considered a staff member.
In this model, the sponsor receives all donations and grants for the project and reports them on their taxes. They’re responsible for all the project’s financial management, including government forms, fund disbursement and all reporting.
As a result, the sponsor has control over all of the project’s funds. This is an excellent option for projects led by people who would prefer to pass off the financials and focus entirely on the mission.
While independent fiscal sponsorship still gives sponsors fiduciary responsibility over the project, the sponsor’s staff does not run projects. This model frames projects more like independent contractors than child organizations. Independent sponsorship also increases projects’ access to certain grants!
Of all the fiscal sponsorship models, pre-approved grant relationships are the most hands-off for sponsors. The sponsor still has some financial oversight to ensure the project complies with IRS rules, but mostly it’s there to receive and disburse grant funds to the project.
Interested in having your organization become a fiscal sponsor? Here are seven steps to simplify the process!
Above, we reviewed three of the most common types of fiscal sponsorship models. If you’ve decided to try out fiscal sponsorship, it’s important to figure out what the logistics would look like for your organization!
When you review this idea with your board of directors , put these questions on the table:
Finally, oversight has to be run by members of your team. Doing a check-in about who wants to own this project early on will help everyone stay accountable!
There is time, energy and some financial burden that goes into being a fiscal sponsor. Including administrative fees in your fiscal sponsorship agreement (more on that below!) helps you cover those costs.
Administrative fees will look different depending on the level of support you’re providing, and can be structured in a few ways:
Knowing your fees will help interested organizations figure out if your organization is a good fit as a fiscal sponsor.
Just like you’d set up a membership application form , put together an application process for interested projects or organizations! We recommend using a form so you can get all of the necessary information in one place.
Include some data fields like:
To build up your credibility and have interested sponsors find you, consider joining the Fiscal Sponsor Directory !
The information you receive in the applications is essentially a sponsorship letter . Just like sponsors would assess your organization before offering support, you’ll want to assess prospective projects closely.
Your credibility (and finances!) will be tied to the projects you sponsor, so ask yourself:
Don’t be afraid to do some research on social media and LinkedIn, or check in with folks in your network. When it comes to fiscal sponsorship, it never hurts to have more information!
Once you have an idea of who you’d like to sponsor, bring the information to a board meeting . This is one more chance to iron out your logistics and make sure that absolutely everyone is on board. Plus, once the sponsorship is set, they can join you in giving the project leaders a big welcome!
Contracts, contracts, contracts! Once you’ve confirmed interest with the applicant, it’s time to hand over your fiscal sponsorship agreement for signing. We highly recommend having as much on paper as possible to prevent future legal disputes.
A few things to have in your agreement include the:
We highly, highly recommend seeking legal support when you draft your fiscal sponsorship agreement! This will help you make sure it’s aligned with local laws and regulations, and adequately protect both parties.
Check ins are the way to go when it comes to your relationship with sponsored organizations. Circumstances and needs change sometimes, and hearing about those changes early can help you amend your agreement as necessary.
Remember: it’s the fiscal sponsor’s responsibility to keep both parties legally compliant, or you can risk losing your own tax-exempt status. A nonprofit lawyer or legal counselor is good to have on hand for any questions and concerns that arise!
If you’re still uncertain about whether nonprofit fiscal sponsorship is right for your organization, we suggest weighing a few pros and cons.
While it might seem like fiscal sponsorships are mostly for the sake of sponsees, there are several benefits for nonprofits.
Becoming a fiscal sponsor can help your organization:
Ultimately, nonprofit fiscal sponsorship is its own charitable initiative. If you have the time and resources, this is an authentic way to make an impact!
Fiscal sponsorship has plenty of benefits, but it also comes with its own risks, including:
While all of these risks exist and have real consequences, there are many things you can do to prevent them from arising. Clear legal agreements, strong communication, financial transparency and due diligence before accepting a sponsored project can mitigate most risks.
Nonprofit fiscal sponsorship is one of the most significant gifts you can give to emerging nonprofit organizations. Whether you’re supporting a one-time project or helping a young organization take its first steps, sponsorship extends your community impact for years to come.
Curious about the tools that can help you manage sponsorships (and beyond!) more efficiently? Connect with us today to learn about how WildApricot’s award-winning membership management software can reduce administrative burden as you continue to grow!
