Pros and Cons of Considering A Fiscal Sponsorship

In the process of thinking about whether your non-profit is ready to become its own entity, the topic has most likely come up of the option of fiscal sponsorship. The name alone creates fear for many non-profit aspirants, but the fact is that little is recognized and understood by these people, when it should be. Understanding fiscal sponsorship can give you the chance to be independent with out standing on your own, so to speak. What's Fiscal Sponsorship? A fiscal sponsorship is an existing 501c3 organization that lends or leases out its legal status to smaller, up-and-coming non-profit organizations that haven't but made it to 501c3 exemption yet. The existing 501c3 calls the up-and-coming organization a "project" and assumes responsibility for them as they proceed with their plans. Pros The possible benefits to utilizing fiscal sponsorship are great. One main one is of course which you can avoid taxes legally whilst still getting on your feet in the non-profit globe. Another benefit is that the existing 501c3 is completely responsible for you legally, making it simpler if you make a mistake and legal action has to be taken. Another benefit is that it's possible to break away into your personal non-profit, 501c3 approved organization as soon as you have developed totally as a group and have a set strategy of action. With a fiscal sponsorship written agreement, as well, there can be a harmonious sense of teamwork. Cons There are disadvantages to every thing that has an advantage, and sadly fiscal sponsorship isn't an exception to that rule. A huge disadvantage of fiscal sponsorship is that the donors who're putting their time and cash into your "project" in the request of the mother 501c3, so to speak, have a lot of power over your actions in the future. Another downside is that there can sometimes be a legal battle over separating from the mother non-profit when it does not want to see your project or profits leave them. It's essential to avoid these disadvantages by establishing a clear and friendly relationship with your sponsor and getting everything in writing as you go along. In common, fiscal sponsorships can be either an amazing tool or a horrible experience for the up-and-coming no-profit organization. The choice should be thought over thoroughly with a lawyer in tow, and your bases ought to be covered, but it can be an excellent method to gain independence without paying the taxes that come with being a non-profit that does not qualify for 501c3 exemption.

Nonprofit Legal Center offers suggestions and resources for you to discover more about how to start a 501c3 and 501c3 nonprofit institutions.