Fiscal Sponsorship Models

What is Fiscal Sponsorhip

For a general overview of fiscal sponsorship, benefits, disadvantages, and best practices, see our other article Fiscal Sponsorship. A fiscal sponsor is a nonprofit organization with tax-exempt status (such as a 501(c)(3) designation with the IRS) that provides fiduciary oversight, financial management, strategic planning, and other administrative services for charitable projects.

Once you've determined your needs and what model is best for you, see our article on how to apply for or exit a fiscal sponsorship.

Types of Fiscal Sponsorship Models

Fiscal sponsorship models exist on a spectrum, each designed to address specific organizational needs, risk tolerances, and operational realities. These models serve distinct purposes in the nonprofit ecosystem

Different models provide varying levels of autonomy and control, allowing projects to select the arrangement that best fits their stage of development. Early-stage initiatives may benefit from the comprehensive support of Model A, while more established projects might prefer the greater independence offered by Model C. There are six types of fiscal sponsorship models that you can engage in; however, the three below are the most common.

Comprehensive Model - Model A

• In this model, all activities and transactions involved in the project are housed with the fiscal sponsor.
• All ownership and control of assets and liabilities are transferred to the fiscal sponsor.
• The project becomes an internal fiscally sponsored program, not a separate entity.
• The fiscal sponsor will shoulder all legal and administrative requirements, including paying employees.
• Paid staff members of the organization are considered employees of the sponsor.
• Funding goes directly to the sponsor.

Pre-approved Grant Relationship - Model C

• The fiscal sponsor and project have a grantor-grantee relationship, meaning that the individual or organization owns the project and all assets and liabilities.
• The project is considered a separate entity.
• The grantee is responsible for its own tax and filing obligations, and they are legally liable and responsible for the project activities.
• The fiscal sponsor still has the ultimate discretion and control over the funding received. They are only fiscally liable and have sufficient control over the project’s funds to disperse them accordingly.
• This model can be used for one-time grants, but if additional fundraising is needed, it will be overseen and approved by the fiscal sponsor and typically carried out by the project staff.
• Funding goes directly to the sponsor.

Single-Member LLC Fiscal Sponsorship - Model L

• This is an emerging type of model for fiscal sponsorship.
• A project is formed as a single-member LLC under state law, with an existing 501(c)(3) exempt organization as its sole member and sponsor (SMLLC).
• The single-member LLC (the project) remains a separate legal entity from the member organization, and thus the sponsor is protected from the liability of the project.
• This model gives the project the most control as the sponsor takes on less liability, with the project operating much like a subordinate company.
• Funding goes directly to the project; however, the sponsor can receive funds if needed.

For a comparative look at each model, see our chart below.

Why Organizations Choose Fiscal Sponsorship

Organizations typically pursue fiscal sponsorship for practical, strategic, and financial reasons that help them advance their mission more effectively.

• Accelerated Path to Operation - Fiscal sponsorship enables new initiatives to hit the ground running. Rather than waiting months for IRS approval of 501(c)(3) status, organizations can immediately access tax-deductible donations and grant funding through their sponsor's existing legal structure.
• Reduced Administrative Burden - Fiscal sponsorship models help maximize efficiency by sharing administrative infrastructure.
• Testing Program Viability - Organizations use fiscal sponsorship to pilot new programs without committing to creating a standalone entity. This "incubation period" allows them to demonstrate impact, refine their model, and build stakeholder support before deciding on a permanent structure.
• Access to Expertise and Networks - Beyond administrative support, good fiscal sponsors often provide valuable guidance, professional development, and connections to funders. This mentorship can be particularly valuable for first-time nonprofit leaders or those working in complex issue areas.
• Funder Requirements - Some foundations and government agencies will only fund organizations with established track records or specific administrative capacities. Fiscal sponsorship can help emerging organizations meet these requirements while building their own operational history.

Fiscal Sponsorship in the UK

In the UK, fiscal sponsorship is referred to as fiscal hosting. Just like in the US, there’s no official legal structure in the UK.

Overview of Fiscal Hosting in the UK:

• Best for charities that are not yet registered in the UK.
• The fiscal host/guarantor holds your project's funds on your behalf and therefore controls how the funds are spent.
  • A benefit for the grantee is that they can use the host’s legal entity and bank account. Obtaining a bank account in the UK as a charity is a difficult and lengthy process. Sponsorship helps cut through the process.
• The fiscal host provides legal assurance that the money is spent according to the project’s terms and goals.
• The fiscal host handles taxes, invoicing, accounting, and other administrative tasks that the organization might not have the resources or skills to execute.

Additional References

• Suggested National Network of Fiscal Sponsors
  Guidelines for Comprehensive Fiscal Sponsorship
• Suggested National Network of Fiscal Sponsors
  Guidelines for Pre-Approved Grant Relationship
  Fiscal Sponsorship

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