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What is Fiscal Sponsorship?

Definition

A fiscal sponsor is a nonprofit organization that shares its corporate and 501(c)(3) tax-exempt status with another charitable group. By doing so, the sponsor accepts all financial and legal liabilities for that group. Although entering into a fiscal sponsorship agreement is a serious undertaking with legal responsibilities and ramifications, it is an excellent opportunity to significantly assist a group or groups whose objectives align with your mission.

Fiscal Sponsorship Agreement

Prior to sharing your organization’s tax-exempt status, it is imperative to seek expert advice. The appropriate legal framework is essential to sustaining a healthy and beneficial relationship. It is also important to emphasize that there are many variations in fiscal sponsorships, and therefore a contract should be customized to meet particular circumstances and needs. Fiscal sponsorship has the potential to increase the number of constituents served and goals accomplished while assisting a new or small group. However, if proper precautions are not taken, your organization may be subject to any legal penalties incurred by questionable activities performed by your sponsored organization.

For many reasons, a potential fiscal sponsor should thoroughly review an organization before entering into an agreement to sponsor it. Due to the legal and financial accountability of the sponsor for the sponsored organization, conflicting opinions regarding how money and internal functions should be handled could become a problem. Also, the sponsored organization could be involved in things that might negatively impact the reputation of the sponsoring organization simply because of its association. And it is possible that the partnership is simply not a good fit. But despite the risk, the ability to enable more nonprofit services to be offered may be worth the effort.

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Topics of Interest: 
Financial ManagementGovernance

Disclaimer

These articles, samples, and resources are offered for informational purposes only and should not be construed as professional advice. If used, your organization should tailor samples to best fit the organization’s specific circumstances. We encourage your organization to seek appropriate professional assistance as needed.

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