Starting out under fiscal sponsorship is great for non-profits who are in need of raising money in the start up phase. The start up non-profit operates under a fiscal sponsor. Contributions are given to the fiscal sponsor and the fiscal sponsor then grants them to the start- up non-profit. It allows a non-tax exempt organization to qualify as tax-exempt under a parent organization and therefore, grant its donors tax-deductible donations.
Qualifying for tax exempt status is one pro of fiscal sponsorship. Another is being able to test out your idea to see if there is a market or want from the public. Ultimately, the public is the one who will be funding your operations. Additionally, being sponsored by a well-known organization can help with publicity and getting your name out there. Free publicity is always a bonus!
Lastly, some organizations that act as fiscal sponsors will provide you with administrative help, i.e. the fundraising or accounting, which could prove rather helpful when you are just starting out and don’t necessarily need to hire someone or have the funds for it.
Now, on to the cons. You may need to produce some sort of legal contract or agreement of your partnership. It is important that as a small organization you are not taken advantage of by the fiscal sponsor. Make sure you also include exit provisions in your contract if you plan on eventually breaking off and becoming an independent organization. Additionally, the sponsor is technically legally responsible for all of the start-up non-profit’s actions. If you don’t operate in the way that the fiscal sponsor wants you to, you will have to do it their way.
If you want to search for a fiscal sponsor, you can search the Fiscal Sponsor Directory here.