A fiscal sponsorship agreement is a legal arrangement that allows a nonprofit organization to serve as a “fiscal sponsor” for another organization that is not yet recognized as tax-exempt by the Internal Revenue Service (IRS). Under this agreement, the fiscal sponsor agrees to provide financial and administrative services to the sponsored organization, while the sponsored organization operates as a project under the fiscal sponsor`s tax-exempt status.
One of the most commonly used fiscal sponsorship models is the Model B fiscal sponsorship agreement. This model is especially popular among small nonprofit organizations that are just starting up and need a stable structure to operate under. Model B is a simple, streamlined agreement that outlines the roles and responsibilities of the fiscal sponsor and the sponsored organization.
The Model B agreement typically includes the following key provisions:
1. Purposes of the Agreement: This section outlines the primary purpose of the agreement, which is to establish a fiscal sponsorship relationship between the sponsor and the sponsored organization.
2. Term of the Agreement: This section details the length of the fiscal sponsorship relationship, which can range from a few months to several years, depending on the needs of the sponsored organization.
3. Financial Arrangements: This section defines the financial obligations of the fiscal sponsor, including the provision of financial oversight, accounting services, and reporting.
4. Administrative Arrangements: This section outlines the administrative duties of the fiscal sponsor, including human resources management, legal compliance, and board oversight.
5. Liability and Indemnification: This section addresses the liability of the fiscal sponsor and the sponsored organization, as well as the measures in place to indemnify both parties against any legal claims or damages.
6. Termination: This section outlines the terms and conditions under which the fiscal sponsorship agreement can be terminated, including notice requirements and the disposition of assets.
Overall, the Model B fiscal sponsorship agreement provides a flexible and efficient way for nonprofit organizations to collaborate and achieve their missions. By operating under the umbrella of a tax-exempt fiscal sponsor, smaller organizations can benefit from reduced administrative burden, improved financial management, and increased credibility. However, it is important for both parties to carefully review and negotiate the terms of the agreement to ensure that their respective interests are protected.