Applying for and Exiting a Fiscal Sponsorship

Topics Covered in This Article

• Know your Needs For Sponsorship
• Common Misconceptions
• Applying for Fiscal Sponsorship - Is it a good fit?
• Exiting a Fiscal Sponsorship

Know Your Needs for Sponsorship

Before applying for fiscal sponsorship, understand where your organization is lacking resources, employee skills, or where you need the most support. When and if you gain fiscal sponsorship, your organization becomes part of the sponsoring entity and thus may be under their control, depending on the model you choose.

Questions to ask before applying for sponsorship:

• What type or level of support do you need?
  • Do you need help with operations or funding or both?

• What resources or skills are you or your organization lacking?
  • Human resources, accounting, or administrative are examples of roles that a fiscal sponsor can fill with their team of already vetted and established experts.

• Do you need short-term or long-term support?
  • Are you needing support to get your project or organization off the ground before you can stand on your own, or are you looking for long-term help and guidance? Not all fiscal sponsors do long-term support; check the type of projects and support the sponsor's organization provides prior to applying.

Common Misconceptions

Fiscal sponsorship is not actively regulated by any governing body in most countries. Therefore, it can be confusing for the sponsee to understand the rules, regulations, and responsibilities for themselves and the sponsoring organizations. Furthermore, the responsibilities of both the sponsor and sponsee can vary based on the type of fiscal sponsorship model chosen. Below are some clarifications on some common misconceptions.

• In most models, you and your organization become part of the sponsoring entity's 501(c)(3) and, therefore, legally under their control for key decisions.
  • How funds are used, board member selection, and hiring decisions are a few of the areas the sponsoring organization controls in many sponsorship models.
  • Under some models and agreements, you are an employee of the sponsoring organization, meaning you are subject to their rules, policies, and HR structure.
• Fiscal sponsorship is not a shortcut to obtaining a visa sponsorship. It does not make obtaining a visa easier or more likely; it simply shifts who is responsible for the visa holder.
• The sponsoring organization chooses projects or organizations to sponsor based on what aligns with their goals, not the goals of the sponsee. The fiscal sponsor will make decisions for your organization based on what best suits its goals. When picking a sponsor, ensuring you are both aligned is vital to avoid friction or future conflict. Your mission should match the mission of the sponsor.
• You are under a charity; therefore, you must follow all laws and regulations of a charity status organization.
• The sponsor can set or decide on your organization's operating model.
• The sponsor has full legal and fiduciary responsibility for the sponsee's actions as they are under their entity. Therefore, they will make decisions to avoid certain risks and protect their entity.
• Sponsorship is not free for the sponsee. The sponsor will take a fee, often between 5-15% of funds granted, to act as your sponsor and take on the risk of your organization.
• As there are no laws on fiscal sponsorships, there’s a risk that government entities, such as the IRS or HMRC, can view your relationship as a mere conduit relationship which could lead to other financial and tax-related issues. Therefore, you need to understand the legal and fiduciary side of your sponsor-sponsee (grantor-grantee) relationship and have written agreements that state the responsibilities of each in detail.

Applying for Fiscal Sponsorship

Once you've determined your organizational needs, ensure fiscal sponsorship is the right fit for you and your organization.

Fiscal sponsorship is a good fit if...

• You lack the knowledge or resources to run or start your project
• You need help with operations for your organization
• You want to test out a project idea in a less risky environment
• You need time or resources prior to being on your own as an entity or charity
• You need funding and operational guidance

Fiscal sponsorship is not a good fit if...

• You are only looking for visa sponsorship
• You are looking to be independent quickly
• You desire someone to execute all the day-to-day tasks
• You do not share the same mission or vision as the sponsor - alignment is critical and cannot be stressed enough when choosing a sponsor.
• You are highly independent-minded and averse to working within someone else's system

You should also research or speak to the fiscal sponsor before applying to understand the type of models they work with, the organizations they sponsor, and their missions and goals. If your organization doesn't align with its mission and purposes, it will likely not risk sponsoring you. Each fiscal sponsor will have a slightly different process for applying. Knowing your needs, short-term and long-term goals, and if you align with their mission are the key steps to ensuring a higher chance of acceptance.

Exiting a Fiscal Sponsorship

Before beginning a fiscal sponsorship relationship, there should be a termination clause, a project separation, or an exit and transfer agreement in the fiscal sponsorship agreement. In addition, the agreement must indicate what assets and liabilities can be transferred from the project if the relationship is terminated. A reminder that the assets, including all funds, belong to the sponsor and not the project, meaning the sponsor decides if and how any funds are transferred.

For instance, if the project wants to exit a fiscal sponsorship and funds or assets are left, there must be a mutual agreement that funds will be transferred to a successor fiscal sponsor or another charitable organization with a similar or compatible project. The funds will not be refunded and should continue to be used according to the charitable purpose.

Projects under a fiscal sponsorship may be terminated if:

• The project wants to set up their own entity with a 501(c)(3) exempt status
• The project wants to transfer to a new fiscal sponsor
• The project wants to terminate the project under the current fiscal sponsor

If you’re planning to set up an entity after leaving a fiscal sponsor, you must:

• Set a fiscal sponsorship termination date
• Agree on a deadline to transfer the assets
• Terminate any employment relationships between the fiscal sponsor and any project staff hired
• Transfer administration of any insurance coverage
• Transfer accounting records

Additional References

• Suggested guidelines for a comprehensive fiscal sponsorship (PDF from National Network of Fiscal Sponsors)
• Suggested guidelines for a pre-approved grant fiscal sponsorship (PDF from National Network of Fiscal Sponsors)
• Sample fiscal sponsorship agreement (PDF from The Colorado Trust)