Sometimes, a nonprofit incorporation
may not want to classify itself as a 501(c)(3) tax exempt organization. Although each organization has its own motivation behind the business choices that it makes, this particular move could put a nonprofit in jeopardy of securing government grants and funding. However, many nonprofits that refrain from filing as 501(c)(3) can find funding via a fiscal sponsor.
"The sponsorship mechanism enables groups to organize around societal concerns without having to incorporate," Jonathan Spack wrote for the website AllBusiness.
"It provides an infrastructure that nurtures new leadership, and it can help start-ups organize to challenge conventional practices and approaches to addressing unmet societal needs. It also offers a way to manage specialized responses to cultural communities. In other words, fiscal sponsorships can be a real boon to the fluidity, innovative capacity and diversity of the community development and nonprofit sector," he added,
When a charitable organization aligns with a fiscal sponsor, the sponsor accepts funding on the organization's behalf. It holds onto the money for the organization and will release it once the group chooses to spend it.
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