One Project with Two 'Model A' Fiscal Sponsors? That's One Too Many! by Colibri Sanfiorenzo Barnhard and Josh Sattely

We (HASER and Social Impact Commons) are occasionally asked whether it is advisable or even allowable for one nonprofit project to have multiple ‘Model A’ fiscal sponsors at the same time.  Below, we share our perspective on this question in English and here, our partner HASER has posted a version in Español.  We’ll save a nuanced analysis of the same question applied to ‘Model C’ relationships for a future post.

Model A Relationship:  

‘Model A’ Comprehensive Fiscal sponsorship (also called “Direct Fiscal Sponsorship”) is an arrangement where an exempt organization, typically a 501(c)(3) public charity, 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 but is often not limited to: tax and regulatory filings, financial and grants management, compliance, the ability to hire staff, asset management and liability insurance.  A simple way of looking at the relationship is - 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 sitting at the Project level.

Through this relationship, Project leaders can raise money and carry out their work in a compliant and supported manner.  

Thorny Questions for Multiple Sponsors

Although not prohibited by law per se, because a Model A project is, legally speaking, a program or initiative of a nonprofit, it is highly unusual and generally not recommended that a Model A project use multiple fiscal sponsors as it raises a host of problematic questions:

• Transparency Questions: One program housed at two organizations is confusing to the public and regulatory agencies.  Donors understandably want to know where their money is going and the Attorney General or equivalent regulatory body of each state and territory is charged with ensuring donors are not misled and nonprofits are transparent.  If there are two homes for a program, how do donors decide which one to donate to? How do donors understand the full picture of the organization when its finances and overall structure are bifurcated?  If a confused donor raises concerns with the Attorney General, are both organizations investigated?

• Operational Questions: Each fiscal sponsor will have its own policies, process, and expectations around the relationship. What policy and procedure applies and in what instances? How are conflicts resolved? What programs and or operations sit where?  How does the leadership of the Project even juggle all this?  

• Financial Management Questions:  How do the sponsors and the Project understand the full picture of the organization when its finances and overall structure are bifurcated?   How is it determined who applies to what funding sources? What is shown in proposal budgets - combined budgets for each project budget at each sponsor or just one? How could either sponsor ensure the same costs are not reimbursed by the other sponsor? Are certain costs cross shared across the entities? How are those managed and distributed? Who holds the overall responsibility over grantees and vendors? Are revenues in certain cases documented twice too?

• Employment Questions: Who hires who and why? Who makes independent contractor v. employee determinations? If some Project staff are hired by one sponsor and other staff hired by the other, are salary scales and benefits packages aligned? If not, is that equitable? How are computers and other assets managed, supported and protected? How are legally sensitive and confidential employment matters handled? And how is supervision of staff managed, if they are spread across multiple entities?

• Legal and Risk Management Questions: One program housed at two organizations creates thorny legal and liability questions. Who’s the fiduciary for what? Who is ultimately responsible for the finances and operations of the Project? Is there one or two advisory boards? Who holds title to assets such as IP and equipment? How is that decided? Is there a license or partnering agreement defining how they are managed for the benefit of the Project? If something were to happen, who is liable? Do both organizations get sued? Which insurance policy would respond? What happens if one sponsor terminates the relationship and there are active grants and liabilities on that side?

Resolving all of the questions posed above (and others!) requires a tremendous amount of time and attention of the Project leadership and both sponsors on the front end, as does actively managing a split relationship of this sort once established.  As such, we do not endorse these set ups and recommend that fiscal sponsorship agreements  make clear that the ‘Model A’ Project may not have multiple sponsors simultaneously. 

**The information provided by Social Impact Commons and HASER does not constitute legal advice. Social Impact Commons and HASER are making this FAQ available for informational purposes only and we always recommend working with qualified and local legal counsel when structuring fiscal sponsorship relationships.