Fiscal Sponsors: What to Consider When Establishing a Partnership

A fiscal sponsor is a nonprofit organization that provides fiduciary oversight, financial management, and other administrative services to help build the capacity of charitable projects. 

Because many faith and community-based organizations hold 501(c)(3) status and are passionate about expanding ministry opportunities beyond their walls, they are often willing to become a fiscal sponsor for a project or program that lacks exempt status. In other words, fiscal sponsors agree to serve as an “umbrella” for an initiative that someone else has established. In doing so, they bestow “nonprofit” status on the organization their sponsor.

Notable benefits to establishing a partnership agreement with a fiscal sponsor include:

• Prospective nonprofit founders can operate their program or project as a public charity without having to incorporate it as an independent nonprofit. 
• Leaders can seek grants and solicit tax-deductible donations under their fiscal sponsor’s exempt status.
• Serving under the umbrella of a credible organization can increase visibility and community engagement. 
• Founders gain access to physical and human resources they might not be able to leverage as an independent organization.

While fiscal sponsorships can prove mutually beneficial for both parties, they can also present many challenges. Intentional partnership conversations help reduce the risk of conflict and increase the probability of shared success.

Five Things to Consider When Exploring a Fiscal Sponsorship Opportunity

1. Explore the shared vision of the sponsor and sponsored organization.

• • Do you share core values?
  • Do you share a common vision for the community?
  • How will the program be marketed in the community? (As an “outreach initiative” or “special project” of the sponsor or with an independent logo and program name?)
  • Who will unofficially “own’ the program? In other words, if the partnership doesn’t work out, will the sponsor continue to claim the program, or would the sponsored organization free to take the program elsewhere?

2. Determine the capacity of all parties

• • Do all parties have qualified personnel who can collaborate and complete the administrative duties required?
  • Are all parties willing to dedicate the time and energy needed to maintain an effective partnership?
  • Who will be responsible for managing the program? (Volunteers, the sponsor’s staff, new staff)
  • Who will provide over-site for the program? (A special advisory board, the sponsor’s  board, or a combination of both) 

3. Clarify financial responsibilities and restrictions

• • Do both parties have a realistic operating budget and defined revenue streams?
  • How will grants and contributions to the “program” be managed? (Grants must be submitted using the sponsor’s information. Will the sponsor engage directly with grantors on the sponsored organization’s behalf? Will they allow the sponsored organization access to their organization’s financial and governance details?)
  • Who is responsible for proposing and approving the program budget?
  • What happens if the program doesn’t meet fundraising goals? (Will the sponsor offset some of the admin or assist with cash flow?)
  • How will you ensure that the fiscal sponsor promptly distributes all restricted program funds? (Grants, contributions, sponsorships, etc.)
  • How will the fiscal sponsor and program managers collaborate on outreach/fundraising efforts? (Messaging, donor prospecting, acknowledging contributors, etc.)
  • How will donor cultivation and management be balanced?

4. Evaluate the measurable goals and objectives of both parties

• • Will all parties establish joint or overlapping annual goals?
  • How will all parties contribute to data tracking and reporting processes?

5. Implement Policies and Procedures to Protect both Parties.

• • Will the fiscal sponsor need to purchase additional insurance coverage to cover program activities? (Transport, services, events, etc.)
  • How will program staff and volunteers be screened, hired, fired, trained, and evaluated?
  • Who will process program complaints, potential allegations, etc.?
  • How will the parties resolve internal and external conflicts?

 

While partnership agreements have the potential to increase impact, they can also increase liability for all parties. For this reason, both parties should consult with a reputable attorney to establish a written agreement that protects all parties.

Partnership agreements should outline the following:

• • Start and end dates
  • Description of all parties
  • Roles and responsibilities of all parties
  • Fiscal management policies
  • Operating principles 
  • Measurable goals and evaluation measures
  • Conflict resolution policies 
  • A process to dissolve the fiscal sponsorship agreement and distribute program assets should it become necessary.

Finally, it is vital to acknowledge that contributions (financial, materials, equipment, or property) that are gifted to a tax-exempt organization must remain within a charitable organization. Should the partnership end, an organization being sponsored might not have rights to resources secured while operating under the fiscal sponsor.