The idea of starting and running a non-profit may put some people off. In addition to state and federal requirements, there is considerable administrative work that goes into starting and continuing a non-profit organization.
But it’s possible to do a non-profit mission or project without forming an organization. Working with a partner in the non-profit arena can help you move an idea into reality and ensure that donations are made to a recognized IRS tax-exempt organization.
Fiscal Sponsorship
Partnering with a larger organization to accomplish your non-profit’s mission can help your non-profit devote more time to its work without the burdens of accounting, administrative, fundraising, and legal tasks that come with the territory.
When you work with a fiscal sponsor, your project can solicit tax-deductible contributions from the public without a separate tax-exempt IRS recognition. This also means that a non-profit in its starting stages or other charitable causes can attract donors before it becomes recognized as tax-exempt under the Internal Revenue Code Section 501(c)(3).
The smaller non-profit or other charitable cause then becomes a “subsidiary” of the fiscal sponsor, operating under the sponsor’s “umbrella.”
In return, the fiscal sponsor keeps a percentage of the funds they collect on behalf of your project. This is typically anywhere from 5% to 15% of the total fund intake on behalf of the subsidiary nonprofit.
Comprehensive Fiscal Sponsorship
In this model, the charitable cause is not necessarily non-profit, but it could be. It’s considered a project, and it does not exist legally as a separate entity.
The project enters into a written agreement for fiscal sponsorship with the other entity. In the agreement, the project becomes one of the sponsor’s “subsidiary” projects.
This means that the sponsor is actually in charge of the project, both from a legal standpoint, as well as a financial standpoint. To help run the project, the sponsor may appoint an advisory committee and utilize the project’s current volunteers and workers.
Much like a merger, the sponsor owns all the work products created by and for the project. This can include mailing lists, fundraising materials, websites, marketing plans, intellectual property, as well as everything else associated with the project.
There are two primary uses for a comprehensive fiscal sponsorship:
• It can be used to nurture and develop a startup non-profit. If it becomes successful, the new non-profit can be spun off into a separate and independent organization. However, the agreement should clearly detail everything regarding ownership of the project’s assets and liabilities is to be handled in the event of a spinoff.
• Short-term projects, such as raising funds following a disaster, a memorial fund, or contributions to build local park facilities, can also benefit from a comprehensive fiscal sponsorship. This is much easier than going through the process of forming a full non-profit then closing it down once the project is completed.
Pre-approved Grant Relationship Fiscal Sponsorship
In this version, the sponsor does not own the project. Instead, the project is a separate entity that’s responsible for its own day-to-day operations. The project applies for a grant or grants from the sponsor, who then funds the grants with money it collects from various sources. These contributions are tax-deductible because they are made to the tax-exempt non-profit fiscal sponsor. Should any of the project’s volunteers, workers or other agents engage in fundraising, they would be acting as agents of the fiscal sponsor, not of the actual project.
The sponsor may or may not own the project or own anything that is produced or created by the project. The sponsor is required to ensure that the money it collects is used for the same mission described in the grant proposal.
Is Your Non-profit Considering A Fiscal Sponsorship? Let Provenza Law Guide You
A fiscal sponsorship is an ideal way for smaller non-profits and charitable causes to partner with a larger non-profit that can offer a wealth of resources than they would have on their own. Before jumping into a sponsorship, it’s important to speak with an Illinois non-profit attorney who can make sure that the sponsorship will benefit both parties.
James C. Provenza is an Illinois non-profit attorney with more than 25 years of experience with Chicago non-profit organizations. Call our firm today at (847) 729-3939, or use our online contact form.
