Fiscal Sponsorship: Model A vs. Model C
A fiscal sponsorship is an arrangement made between a charitable project and a 501(c)(3) to help collect and distribute funds, manage administrative operations, and provide strategic support to further a specific charitable purpose.
But the level of support your organization needs depends on a variety of factors, including your current revenue, whether or not you have an existing social impact strategy, and more.
Essentially, fiscal sponsorship is a space for nonprofits and for-profit businesses, with charitable programs, to navigate the complexities of funding, operations, and compliance without needing to put up all of their own infrastructure.
You've probably seen "501(c)(3)" thrown around multiple times, both on our site and in the world of nonprofits — at its core, this is a code granting tax-exempt status to qualifying charitable organizations. While "nonprofit" is a state-level designation, 501(c)(3) is a federal designation from the IRS that provides tax benefits to donors and ensures adherence to strict guidelines, which in turn promotes transparency and accountability in both nonprofit and sponsored endeavors.
Fiscal sponsorship is a way to support new initiatives or projects without having to establish a separate legal entity
It also allows them access to funding, administrative support, and expertise, all while ensuring tax compliance through their partnership with the sponsoring organization.
Those exploring social or charitable initiatives benefit from fiscal sponsorship by gaining access to collaboration with nonprofits so that they can receive tax-deductible donations for their efforts under their nonprofit sponsor's umbrella. This way, they can engage in social impact while leveraging the nonprofit's established infrastructure, credibility, and tax-exempt status.
There are several different types of fiscal sponsorship agreements, but the two most common are Model A and Model C. Now, let's take a deeper dive into the differences between the types of fiscal sponsorship agreements.
Types of Fiscal Sponsorship Agreements
There are two main types of fiscal sponsorship: Model A and Model C
Also known as "direct" or "comprehensive" fiscal sponsorship, Model A is an all-in-one solution; this is a nonprofit in a box. In Model A, you focus only on fundraising and impact, and the sponsor (i.e., Mission Edge) takes care of everything else, from accounting to HR to operations and more. Model A is best for those in need of structure and for those looking to reduce their existing administrative load.
Model C is sometimes called "indirect" fiscal sponsorship or a "pre-approved grant relationship." It's focused much more on finances and much less on in-depth management and support from the sponsor. We receive donated dollars supporting a specific purpose and re-grant them to your organization to completely fulfill that charitable purpose. Model C is best for organizations with sufficient operations to handle the administrative workload and who want to branch out and bring, or grow, a charitable impact arm to their business.
| Aspect | Model A Fiscal Sponsorship | Model C Fiscal Sponsorship |
|---|---|---|
| Overview | Comprehensive agreement offering extensive support. | Financial partnership mainly for fundraising. |
| Ideal For | Those needing in-depth accounting, HR, admin support and a legal structure. | Entities with admin capacity needing a nonprofit arm to increase impact |
| Key Features | • Helps avoid startup costs • Set up much quicker than the IRS approves 501(c)(3) organizations • Specializes in nonprofit finance and operations • The charitable work exists as a program under Mission Edge. | • The charitable work is fulfilled by a program that operates under your entity • Your organization may receives 1099 for revenue we grant • Your entity is still responsible for tax filing of all monies you handle |
| Benefits | • Focus on fund generation and community impact • Reduces operational costs • Gain a strong strategic partner to grow increase impact • Peace of mind knowing your entire charitable program is operating legally | • Access to charitable funds • Quickly set up • Peace of mind knowing all charitable dollars are handled according to law |
| Suitable Projects | • Organizations wanting to focus purely on their mission and fundraising • Existing nonprofits looking to reduce their administrative burden | • Organizations/companies with a charitable program that lacks access to donate funds • Riskier initiatives • Project-specific initiatives |
Examples of fiscal sponsorship agreements
Nine years ago, Mid-City CAN partnered with Mission Edge to expand their impact. Seeking growth and support, they turned to Mission Edge's Fiscal Sponsorship program.
We provided essential services like Accounting, HR and a 501(c)(3) structure, which enabled them to grow while they benefited from our established structure.
During their time working with us, Mid-City CAN was able to expand some of their existing programs and create new initiatives to serve their community. But one of the most exciting results of our partnership was that they were ultimately able to secure federal funding and, ultimately, their own independent 501(c)(3) status. Mid-City CAN's success highlights the transformative potential of fiscal sponsorship.
Another example: The Switchfoot Bro-Am Foundation already had their own 501(c)(3) organization, but they were looking for financial support so that they could refocus on their social mission.
Grammy Award-winning rock band Switchfoot established the Switchfoot Bro-Am Foundation two decades ago, focused on aiding unhoused, at-risk and disadvantaged youth through surfing, music and arts-related initiatives.
When they started partnering with Mission Edge, they were at a transitional phase in their nonprofit journey — they were already an independent 501(c)(3) organization, but they were looking to streamline their structure for future growth and needed a nonprofit-savvy partner like Mission Edge to bridge the gap. We leveraged financial support, accounting, and HR services, along with our proven nonprofit framework, to help them understand their needs and increase their impact.
Through our alliance, Switchfoot Bro-Am is empowered to invest back in their community, and they have a strong foundation for future growth.
Fiscal Sponsorship for Emergency Relief
During disasters like Hurricane Katrina or the COVID-19 pandemic, corporations often feel motivated to help. Many programs involve donation matching and philanthropic fundraising that require a 501(C)(3) structure. Since they have the administrative capacity to implement the program but lack the legal entity to channel charitable funds, a fiscal sponsorship provides a way to offer donors both tax-deductible donation options and the security of knowing a credible nonprofit organization is ensuring the funds are used for the appropriate purpose.
Which One is for You?
Now that you know the function of both models, how do you decide which one to go with? One thing to keep in mind is how the flow of money occurs.
In a Comprehensive Sponsorship (Model A), we receive funds and pay out all expenses directly.
This means we directly pay your employees, contractors, vendors, etc. while providing the overall legal structure and deep strategic support in finance, HR, and operations.
In a Pre-Approved Grant (Model C), we receive funds and re-grant them to your organization.
Your organization is then responsible for recording the revenue and paying all expenses directly to your contractors, vendors, employees, etc.
People Also Ask
Q: If I'm fiscally sponsored now, will I have to be forever?
Nope. If it's your goal, we'd love to help you operate your own nonprofit arm or support your own 501(c)(3) — however long it takes to get there. Regardless of the sponsor you go with, your arrangement can be flexible based on your evolving needs and the growth of your organization.
While some fiscal sponsorships are long-term, others offer many opportunities for transition.
Lots of the folks we work with have had other fiscal sponsors in the past but are looking for a more (or less) hands-on approach, depending on how their needs have changed over time. It's important to create an agreement you feel comfortable with, and ultimately, you should be the one in control of where you're headed.
Q: What's the difference between a fiscal sponsor and a subsidiary?
We get it — there's a lot of jargon in the business world, and oftentimes, these similar concepts can get blurry. To recap: A fiscal sponsor exists purely to further nonprofit and charitable operations. This is done by establishing a new program (essentially creating a new department) for the sole purpose of furthering a specific charitable purpose that you have developed and that we have agreed aligns with our overall charitable mission. A subsidiary is a separate legal entity that is owned by its parent company. This often occurs in the for-profit world and the parent company typically owns a majority of the subsidiary's voting stock, meaning it has significant control over its operations.
Fiscal sponsorships and subsidiaries serve different operational purposes.
The important takeaway is this: a good fiscal sponsorship is about gaining a strategic partner, not losing control over your charitable work.
Mission Edge's Fiscal Sponsorship Services
Here at Mission Edge, we're big believers in creating a meaningful impact — and through success stories like Mid-City CAN and Switchfoot Bro-Am, we've seen that fiscal sponsorship is a great way to leverage our resources and create a ripple effect.
Regardless of whether you're looking for Model A or C sponsorship, Mission Edge offers support for both. Most of the organizations we work with:
Have already been doing charitable work but don't have a nonprofit set up to accept donations or grant funds.
Want to offer charitable services, but don't want it to impact their bottom line.
Want to simplify their nonprofit operations while focusing on fundraising and impact without the administrative tasks that come with maintaining a nonprofit.
Have another fiscal sponsor, but are looking for a deeper level of partnership and support.
