Fiscal Sponsorship 101
What is fiscal sponsorship?
Fiscal sponsorship is an arrangement where an exempt organization, typically a 501(c)(3) public charity, furthers its mission by receiving and expending funds to support a mission-aligned “Project” while retaining discretion and control over the funds. Depending on the model, fiscal sponsors may also share their legal home, back office, and other resources with their Projects.
Unlike a traditional program carried out by a nonprofit, fiscal sponsorship arrangements are typically memorialized in an agreement that defines roles and responsibilities. The leadership of the Project usually reserves the right to exit the relationship.
There are multiple “models” of fiscal sponsorship, seven or eight depending on how you count, each designated by a letter of the alphabet.
The two most commonly utilized models of fiscal sponsorship are “Model C” (also called pre-approved grant relationship) and “Model A” (also called direct or comprehensive fiscal sponsorship”.
“Model C” Pre-approved Grant Relationship
“Model C” relies on a re-granting relationship between the sponsor and a separate entity or person carrying out a charitable project, whereby the sponsor receives charitable contributions and re-grants funds to a third party for final expenditure and performance of the charitable activity. The sponsee then reports back to the sponsor on the uses of the funds.
“Model A” Comprehensive Fiscal Sponsorship
In contrast to “Model C”, under a “Model A” relationship, the Project becomes a part of the fiscal sponsor for the duration of the relationship. Under this relationship, the fiscal sponsor furthers its mission by sharing its legal home and back office infrastructure with mission-aligned projects while retaining the discretion needed to ensure compliance with applicable laws and regulations. Back office infrastructure includes though not limited to: tax and regulatory filings, financial and grants management, compliance, the ability to hire staff, asset management and liability insurance. Basically the project becomes a program of the nonprofit but there are defined roles and responsibilities as to how the nonprofit supports and works with the program with maximum allowable strategic and programmatic decision making, including the right to exit the relationship, sitting at the project level.
Fiscal sponsorship can address a wide range of needs.
For-Profit Businesses
You are a for-profit business working on a short-term or long-term social good project that could qualify as charitable, such as a media company producing an educational documentary, or offering services to low-income communities. Your project could find a quick and easy home with a fiscal sponsor.
Individual Change Makers
You are an individual culture bearer, social entrepreneur, change maker, artist, or community leader with a great social benefit idea or project you want to undertake. But you don’t have a nonprofit, and you need support. Do what you do best, and have a fiscal sponsor take care of the rest!
Nonprofit Organizations
You are an established nonprofit with your 501(c)(3) looking to save money or grow capacity by sharing back office staff and functions like bookkeeping, marketing, legal support, HR, etc. You may also seek a safe haven to explore new programs, business models, or generally reimagine your model.
Collectives & Collaborations
You are a collective or a collaborative of individuals and/or organizations working together on a project or initiative. You need a “neutral”, shared management platform where you can access administrative support for your work and distribute financial and other risks more equitably.
Frequently Asked Questions
How can I stay updated on developments in the field and get invited to topical conversations?
Is fiscal sponsorship only for start-up nonprofits or temporary projects?
No. Comprehensive fiscal sponsorship can be a solution for sharing back office staff and systems among established nonprofits, without having to give up your nonprofit, board, mission or vision. For start-ups or projects without an entity or tax exemption, a fiscal sponsor can be either a temporary support solution or a “forever” home for your work.
Is fiscal sponsorship only for organizations that need a 501(c)(3) to receive contributions?
No. Other forms of fiscal sponsorship, notably comprehensive fiscal sponsorship, offer more robust wrap-around support: staff for finance, HR, legal, fundraising, and marketing, as well as insurances, regulatory/tax compliance, and key management technologies.
Is fiscal sponsorship more expensive than managing on my own?
In most cases, no. In fact it allows you to save costs while adding capacity. A recent study by Social Impact Commons examined 475 arts organizations in Southeastern PA operating below $2M in budget and found that they spent between 17% and 27% of their income on the same back office supports a fiscal sponsor can offer for between 9% and 15%—a savings of about 10% of income!
Is fiscal sponsorship only for projects and organizations with small budgets?
No. The above economic and value of integrated support holds true for projects and organizations up to about $10M in budget!
Will I lose control of my mission, vision, or decisions that I care about?
No. Fiscal sponsors are co-managers with you for everything behind the curtain. Your public face remains independent: your brand, donor/funder relationships and decisions about vision, mission, and organizational development remain with you (and your board, if you have one). Fiscal sponsors are like shopping malls and projects like the individual storefront businesses. The individual businesses share lots of common resources provided by the mall (parking, common space, wayfinding, security, etc.), but retain their independent brands, customer relationships, and secure space for their assets.
Will working through a sponsor impede my ability to pay for things and operate?
Not so. Quality fiscal sponsors help keep you out of financial trouble and make sure the financial house is in order, but should not stand in your way of maintaining smooth operations.
Will sharing infrastructure place my assets at risk?
No. Comprehensive fiscal sponsors manage all of your revenue and expenses, though only with your authorized instruction and through fully restricted fund accounting. Staff and systems may be shared, but there is no borrowing or sharing financial assets among sponsored organizations.
Is fiscal sponsorship an exotic or untested nonprofit model?
No. The “models” that have been identified are just ways to describe tried and true nonprofit structures. Fiscal sponsorship is actually just multi-program management—like a theatre managing multiple productions, a hospital with many different clinics, or a university with multiple schools and departments. Only with fiscal sponsorship, your brand, mission, vision, and core relationships remain independently yours.
Are funders and donors hesitant to work with fiscal sponsors?
This is increasingly not the case as the funding community is embracing fiscal sponsorship as a means of promoting greater sustainability in the nonprofit sector. Where we have encountered hesitancy, it’s almost always an issue of understanding of or familiarity with fiscal sponsorship, not hard or considered policy. A bit of clarification and education from the sponsor usually sets things right.
What is a commons or commoning?
A commons is a set of resources (financial, human, physical, natural, intellectual) that is stewarded and sustained for the benefit of a defined, but open group of people. Most commons revolve around land or real property or other natural resources: shared grazing land, a lake, an irrigation system for a set of farms, etc. Increasingly, digital commons exist where information and ideas are shared with a group of members. But any resource can be sustained and benefit a community through commoning. Fiscal sponsors commonize infrastructure for nonprofits: staff, infrastructure, management practices, and even tax-exempt status. Commoning is the act of stewarding a commons—a community managing resources together with equitable and mutual care.
Is Social Impact Commons a fiscal sponsor?
No. We are not a fiscal sponsor, we support fiscal sponsors. Social Impact Commons is an incubator and shared service provider for the fiscal sponsorship field, with the goals of growing and strengthening the field. We are a 501(c)(3) tax-exempt organization, with the sub-designation as a “Type I Supporting Organization.” This means we support independent organizations of similar mission—in our case, fiscal sponsors or commons managers.