<aside> What’s this about? Fiscal sponsorship lets you join and piggyback onto the legal and tax-exempt status of a larger nonprofit. Your organization may already be fiscally sponsored; this page explains how to exit the arrangement.

What do I need to do? Consider whether a fiscal sponsorship is appropriate for your organization. If you’re already fiscally sponsored, and want to establish an independent entity of your own, get procedures in place to transfer employees and assets.

Contents

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Further reading

Pineapple Operations: Fiscal sponsor directory
GRACE: A Brief Overview of Fiscal Transitions & Thinking Ahead
Impact Ops: Fiscal sponsorship, incubation, or ops support?

Databases

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What’s a fiscal sponsor?

A fiscal sponsor (”sponsor”) is a nonprofit organization that provides tax exemption status, and administrative services, to smaller charitable projects.

Fiscal sponsorship can be an option for individuals or groups who don’t want to establish their own legal entity, or for existing legal entities without tax-exempt status.

A sponsor may consider sponsoring your project if your activities align with its mission.

The sponsor maintains control and oversight of any grants or donations received by the sponsored project; however, it also shoulders all of the legal and regulatory burden for the sponsored project. This means that staff of the smaller project technically become employees of the sponsor. The smaller project is bound by the sponsor’s policies, and its activities are overseen by the sponsor’s board. (It also means that any data or IP produced by the smaller project legally belongs to the sponsor.)

In return for these administrative services, the sponsored project pays a fee to its sponsor. This fee is typically between 10–20% of the project’s income, but can be higher. Some sponsors offer additional operational support above the basic financial and administrative support, and adjust their fees accordingly.

Getting sponsored

If a fiscal sponsorship arrangement sounds like the right approach for your project, review the following pros and cons of the arrangement first.

| Pros | ✅ Sponsor shoulders much of the legal and regulatory burden, but note that you personally may be liable under the terms of your fiscal sponsorship agreement if you break it. ✅ Policies and procedures already established ✅ Can attract potential donors with tax deductibility ✅ Can appear more legitimate/professional — confidence in your oversight/compliance ✅ Network benefits | | --- | --- | | Cons | ❌ Sponsor maintains control and oversight of any grants or donations received ❌ Project is bound by sponsor’s policies and procedures ❌ Less control over project’s future (sponsor may decide to wind down its support) ❌ Sponsor controls all data and IP ❌ If no connection between missions, IRS might view relationship as mere “conduit relationship” | | Uncertainties | ❔If you intend to hire foreign workers via H-1B, check whether sponsor has received cap-exempt visas before. ❔May inherit PR risks from sponsor or associated projects if insufficient governance measures in place |

If the pros outweigh the cons — at least for this stage in your project’s lifecycle — your next step is to identify a suitable provider. Fiscal sponsorship has been offered by organizations like Players Philanthropy Fund and Rethink Priorities — you can find a directory of sponsors in .

Once you’ve identified a sponsor with sufficient mission overlap, reach out to these organizations and enquire. Many have application forms that you can find in the linked database.

Exiting fiscal sponsorship

Your project may already be fiscally sponsored by a larger nonprofit; if so, you may decide to exit your sponsor for one of several reasons:

Seeking another sponsor
Establishing an entity of your own
Winding down the activities of your project

Once you’ve decided to exit your fiscal sponsorship, you don’t need to leave right away.

In fact, if you’re establishing an entity of your own, it’ll be useful to begin working on subsequent tasks before your exit is complete. These tasks might include talking with prospective board members, drafting governing documents, and considering your fundraising strategy. (All of these are subsequent tasks in the Nonprofit Playbook.)

But you will want to devise a plan at this stage.

Planning the spin-out

The key goal when planning a spin-out is to make sure the new entity is operational (registered, has a bank account, etc.) so that the project can transition between entities without any missteps in day-to-day operations.

There are four high-level stages to consider for your spin-out:

Understand the timing: When is the target spin out date?
Understand the exit terms: What are the key dates? What support, if any, will you continue to receive after your exit?
Transfer funds and assets: How will funds allocated to your project be used when its sponsorship ends? Which assets should be transferred from the sponsor, should there be any remaining?
Migrate systems: Which systems and infrastructure should you use in your new entity?

The table below breaks each stage down into a series of steps. This can form the basis of your “tracker” for managing the spin-out.

Stage	Steps	Notes
1. Understand the timing	Determine target spin-out date	Usually be dictated by how long it’ll take to get the new entity up and running, so 3–6 months’ advance planning is appropriate. The timeline might also be dictated by the time it would take you to spend down your remaining funds, if the sponsor’s unwilling to make an exit grant to the new entity. (This might be cause the new entity lacks 501(c)(3) status, or the transfer doesn’t comply with donors’ original intentions.)
2. Understand the exit terms	Read your employment contract	Your employment contract will specify the end date of your employment, and thus the date after which your project will be legally separate from your sponsor. (When exiting a fiscal sponsorship, it can be common to have a supplementary exit agreement in place — specifying terms and conditions around termination, project separation, and data transfer. However, a separate exit agreement isn’t essential. As a fiscally-sponsored project, you’re legally employed by the sponsor — so, a fixed term employment contract (specifying an end date) is sufficient for the legal separation.)
3. Transfer funds and assets	Request your balance sheet	Will likely be a tentative balance if you’re still sponsored; a final balance may only be available after spin-out.
	Initiate transfer	Will likely happen after the spin-out’s complete and the sponsor has reconciled any final payments. Some sponsors will only grant to other 501(c)(3)s. So, you can either wait until your new entity has 501(c)(3) status or you can apply for Expenditure Responsibility in order to complete the transfer.
	Determine assets to transfer	Assets might include laptops, monitors, and other equipment on the sponsor’s asset register.
	Transfer employment contracts	Usually done by project team members formally resigning with notice given for the target spin-out date. The new entity will issue contracts to the team members, with the first day being the day after the target spin out date from the sponsor.
	Transfer data	Transferring personal data may require that you inform users that there data is being transferred to the new entity. It may be sensible to get legal advice on transferring data, especially if your project makes use of sensitive categories of data (like ethnicity or health).
	Transfer IP & intangible assets	May involve a valuation of IP, conducted by an external agency.
	Transfer vendor contracts	Some vendors allow you to easily shift the contract over to the new entity and update the payment details. Others may require you to cancel the contract you have with them and set up a new contract between them and the new entity. So, pull together a list of all vendors you have contracts with and systematically go through and inform each vendor and seek to transfer the contracts over to the new entity.
	Transfer grants	If the sponsor’s willing to transfer the remaining balance you hold on hand with them to the new entity, it’ll likely want to do so via an exit grant. There should be a grant agreement that accompanies this grant.
4. Migrate systems	Determine systems to migrate	Consider which systems you used — and enjoyed using! — while your project was sponsored. For a list of systems we recommend, see ‣.
	Migrate accounts where necessary	For many of these systems, it’s sufficient to simply create a new workspace from scratch. However, for some systems with significant historical data, you may want to migrate the accounts and their data into the new workspace. An example of this is Google Workspace, where you may want to preserve historic email exchanges post spin–out. You can use Google’s data migration tool for this (in combination with email forwarding from the old domain to the new domain, to ensure nothing gets missed).