For nonprofits looking to support charitable projects while maintaining financial and legal separation, a well-structured Model C fiscal sponsorship agreement template provides the ideal framework. This arrangement allows the fiscal sponsor to regrant funds to an independent entity while ensuring full compliance with IRS regulations. A fiscal sponsorship template is essential for clearly defining roles, responsibilities, and legal obligations, safeguarding both parties while maximizing impact.
Why a Strong Model C Fiscal Sponsorship Agreement Template Matters
A fiscal sponsorship agreement is a legally binding document that protects both the fiscal sponsor and the sponsored organization. A comprehensive agreement helps:
- Clarify the relationship between the fiscal sponsor and the sponsored project.
- Ensure compliance with IRS guidelines to protect the fiscal sponsor’s tax-exempt status.
- Define financial and reporting responsibilities for both parties.
- Mitigate risks by outlining legal and operational boundaries.
Key Components of a Model C Fiscal Sponsorship Agreement Template
A strong agreement for Model C fiscal sponsorship should include the following elements:
1. Purpose & Structure of the Agreement
- Clearly define the nature of the fiscal sponsorship as a pre-approved grant relationship (Model C).
- State that the sponsored project is a separate legal entity and is not a program or division of the fiscal sponsor.
- Establish mission alignment between the fiscal sponsor and the sponsored project.
2. Roles & Responsibilities
- The fiscal sponsor is responsible for receiving tax-deductible donations and grants on behalf of the sponsored project and regranting them.
- The sponsored project is responsible for operational, legal, and financial management of its activities and ensuring the funds are used exclusively for charitable purposes.
- Both parties must comply with IRS and state nonprofit laws.
3. Financial Management & Fund Disbursement
- Donations and grants received by the fiscal sponsor for the sponsored project will be regranted in a manner that ensures compliance with IRS regulations.
- The sponsored project must submit grant proposals, budgets, and periodic financial reports to the fiscal sponsor.
- Disbursements will be made only after review and approval by the fiscal sponsor to ensure funds align with the project’s charitable purpose.
4. Fundraising & Donor Compliance
- The fiscal sponsor will receive and process tax-deductible contributions designated for the sponsored project.
- The sponsored project must provide fundraising plans and materials to the fiscal sponsor for approval to ensure compliance.
- The fiscal sponsor is responsible for issuing donor acknowledgments and maintaining donation records.
5. Administrative Fees & Costs
- The fiscal sponsor may charge an administrative fee (e.g., a percentage of funds raised) to cover processing and oversight costs.
- Any additional costs incurred by the fiscal sponsor (e.g., legal or audit fees) should be clearly outlined.
6. Reporting & Compliance Requirements
- The sponsored project must submit regular reports on fund usage, program impact, and financial statements.
- The fiscal sponsor must ensure funds are used exclusively for charitable purposes and report them accordingly on its Form 990.
- Both parties must retain financial records for the period required by law.
7. Liability & Risk Management
- The sponsored project must indemnify the fiscal sponsor against any legal claims related to its operations.
- The fiscal sponsor may require the sponsored project to obtain insurance coverage.
- The agreement must include provisions that ensure the fiscal sponsor is not liable for the project’s debts or legal actions.
8. Termination & Fund Transfer
- Either party may terminate the agreement with written notice (e.g., 30-60 days in advance).
- If terminated, the fiscal sponsor will transfer any remaining funds to another qualified 501(c)(3) nonprofit or return them to the original donors, as permitted by law.
- The agreement should outline a process for the sponsored project to transition to its own 501(c)(3) status if applicable.
How Fiscal Sponsors Can Use the Model C Fiscal Sponsorship Agreement Template Effectively
A fiscal sponsorship agreement is most effective when properly implemented. Best practices include:
- Provide guidance to sponsored projects on financial reporting and compliance expectations. Delegate budgets and set custom permission tiers with Crowded’s subaccount feature to effectively steer sponsored projects within budget and compliance constraints.
- Maintain transparency by regularly reviewing Crowded’s centralized financial reporting dashboard which offers real- time visibility into all of the sponsored projects expenditures.
- Enforce compliance with Crowded’s automatic transaction capture, built in compliance safeguards and visa fraud protection.
- Regularly review and update agreements to reflect changes in nonprofit laws or operational needs.
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How Crowded Streamlines Fiscal Sponsorships
While a strong agreement provides the foundation, effectively executing a fiscal sponsorship requires streamlined financial tools. Crowded’s all-in-one financial platform enables fiscal sponsors to create unlimited subsidiary bank accounts, delegate financial management with sub-account admins, and maintain full oversight with automated reporting and compliance safeguards. By integrating Crowded into their operations, fiscal sponsors can reduce administrative burdens, minimize risk, and ensure the long-term success of their sponsored projects.
Your questions, answered.
What is a Model C fiscal sponsorship agreement?
A Model C fiscal sponsorship agreement is a legally binding contract that establishes a pre-approved grant relationship between a fiscal sponsor and a sponsored project. The fiscal sponsor receives tax-deductible donations and grant funds to the project while maintaining financial and legal separation.
How does a Model C fiscal sponsorship agreement differ from Model A?
Model C allows the sponsored project to remain legally independent, while Model A fully integrates the project under the fiscal sponsor’s tax-exempt status. Model A involves more oversight and liability, whereas Model C functions as a grantor-grantee relationship.
What fees are involved in a Model C fiscal sponsorship?
Fiscal sponsors typically charge an administrative fee, often a percentage of the funds raised, to cover operational costs such as donation processing, compliance monitoring, and reporting. Fees vary based on the sponsor’s services and policies.
Can a sponsored project under Model C eventually become a 501( c ) (3)?
Yes, many projects use Model C fiscal sponsorship as an incubator before applying for their own tax-exempt status. A well-drafted agreement should outline the process for transitioning to an independent nonprofit.
How does Crowded help fiscal sponsors manage sponsored projects?
Crowded provides an all-in-one financial platform for fiscal sponsors, enabling them to create sub-accounts, manage fund disbursements, automate reporting, and maintain compliance. This reduces administrative burden while ensuring financial oversight.
