In my last post, I discussed some the steps Project Create is taking to become a legally recognized nonprofit organization. While this is one way to achieve nonprofit status, I want to discuss a very useful, alternative approach called a fiscal sponsorship.
Instead of rewording a perfectly good explanation, here is an excerpt from Grantspace.org:
Fiscal sponsorship is a formal arrangement in which a 501(c)(3) public charity sponsors a project that may lack exempt status. This alternative to starting your own nonprofit allows you to seek grants and solicit tax-deductible donations under your sponsor’s exempt status
An important requirement is that the sponsored group’s activities must be in line with the sponsor’s mission because they are considered one legal entity. This means that if a charity’s mission is to provide food to the homeless, then an art based nonprofit (i.e. Project Create) most likely cannot use them as a fiscal sponsor.
The major benefit is that the sponsored group gains 501(c)(3) status faster than applying with the IRS, meaning it can begin operations that much sooner. The new program is subject to the bylaws and rules governing the sponsor, and in some agreements, the sponsor provides administrative oversight. In return, the sponsor receives a percentage of the donations and grants received in the sponsored group’s name.
Another plus is that a fiscal sponsorship can be temporary, allowing the sponsored group to apply for independent 501(c)(3) status and break away from the sponsor. This brings us back to Project Create’s journey. I fully intend to form an independent nonprofit, but I don’t want our mission to sit on the backburner while the IRS approves our application. Therefore, while we complete our filings, Project Create will also seek a fiscal sponsorship.
Finding a fiscal sponsor, however, does require some research. There are organizations such as the Fiscal Sponsor Directory that can help connect you with potential sponsors, but keep in mind that many people are applying for limited sponsorships. Another more obvious option is to research on your own and approach existing charities with similar missions.
After thoroughly researching the nonprofit field in New Orleans, I found a potential sponsor that was interested in sponsoring Project Create. We are negotiating with an education based nonprofit focused on afterschool and summer programs. We can use this group as a sponsor because our mission to increase art education and provide free resources to students is perfectly in line to accomodate its afterschool programs.
As soon as we sign our contract, I will provide more information on our sponsor.