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Is fiscal sponsorship typical to maintain control of new charity?

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Is fiscal sponsorship typical to maintain control of new charity?

I recently formed a nonprofit and was granted my 501(c)(3) status. We are looking to begin services in the coming months. In order to maintain control and drive the mission and receive compensation, I’m listing myself as CEO and contracting with a fiscal sponsor. Is this strategy typical? 

No.  It is not typical to use a fiscal sponsor for an organization that has already received recognition as a 501(c)(3) charity from the IRS.  A fiscal sponsorship is normally used to attract deductible charitable contributions to an existing 501(c)(3) that can be used for a program that is charitable in nature but not yet recognized by the IRS.  If you have your recognition letter, you don’t need to use a fiscal sponsorship to attract support.  Donations to your own (c)(3) will be deductible.

If you do use a fiscal sponsorship, it won’t necessarily guarantee that you control the mission.  There are two primary ways in which fiscal sponsors operate, either to undertake the program themselves while hiring the initiators to run it, or to make a grant to the new group to run the program according to a contract.  In the first method, they could hire you to run it, but decide you aren’t doing it very well and terminate your services.  In the second way, they could decide you weren’t meeting the requirements of the fiscal sponsorship contract and withhold the money.

You don’t need an intermediary to be able to pay yourself as the CEO.  You can do that with your own organization and can save the administrative fee you would have had to pay the fiscal sponsor. 

The real way to assure that the mission will be followed as you think it should be is to structure your organization as a “sole member” corporation, where you are the sole member who has the right to select and remove the board.  (See Ready Reference Page: “Sole Member Bylaws Can Protect Founder of Nonprofit”)  That would give you the power to assure that the board supports your view of the mission and works to assure its success.

Tuesday, August 27, 2019

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