Fiscal hosting, often referred to as fiscal sponsorship outside the Open Collective context, is when an organization holds funds on behalf of smaller projects (which we call initiatives or collectives) and often also provides administrative services such as financial oversight and management.
Since OCF is a 501(c)(3) nonprofit organization, our hosted initiatives (through a contractual relationship), are also able to receive tax-deductible contributions without obtaining their own independent 501(c)(3) status - which can be a time- and resource-consuming process).
“Fiscal sponsorship” and “fiscal hosting” mean exactly the same thing.
In the US, you will primarily hear the term “fiscal sponsorship,” but since Open Collective works with groups all over the world, we use the term “fiscal hosting” to be inclusive of a variety of similar international arrangements between sponsoring or hosting organizations and smaller groups they are working with.
Open Collective Foundation’s fiscal hosting services fit within the category of “comprehensive,” “direct,” or “Model A” fiscal sponsorship.
These terms describe situations where a project or organization (what we call an initiative) is legally part of a larger organization, the fiscal host. Through this relationship, initiatives can transact financially without needing to legally incorporate.
💡You can think of this type of fiscal host as a sort of “umbrella” organization.
As the fiscal host, we hold our initiatives’ funds in our bank account and are responsible for taxes, accounting, legal compliance, and financial administration. While our hosted initiatives have a great deal of autonomy within the bounds of our Terms, Open Collective Foundation ultimately is responsible for the oversight of initiatives’ funds.
When you hear that an organization is a “501(c)(3) organization” in the US, that means they have been approved by the IRS as a tax-exempt, charitable organization. The name comes from section 501(c)(3) of the US Internal Revenue Code.
There are other 501(c) organizations, such as 501(c)(4) and 501(c)(6) organizations, that are nonprofit. But 501(c)(3) organizations are unique in that they are tax-exempt and financial contributions to them may be tax-deductible. This is due to the IRS officially approving their charitable purposes and determining that they provide public benefit to society.
501(c)(3) status is also useful when you are seeking grant funding from US-based charitable foundations. These organizations often restrict their grants to only 501(c)(3) organizations like Open Collective Foundation.
Our hosted initiatives can use OCF’s 501(c)(3) status to apply for special funding from foundations. From smaller family foundations to enormous international grantmakers, the ability to apply for grants is a big benefit of joining Open Collective Foundation.
There are other potential benefits to nonprofit status, such as access to free & discounted services and nonprofit rates.
The word “foundation” is used in a variety of ways in the United States and, unlike in Europe and elsewhere, the word itself has no specific legal definition. Open Collective Foundation is a public charity, not a private foundation or operating foundation.
We are not primarily a grantmaker, and focus on our own operational mission (that is, enabling our hosted initiatives). You’re welcome to use the word “Foundation” to refer to OCF, but if you’re being asked about our structure for official purposes (e.g. a grant application) the technical term is “California Public Benefit Corporation” or “501(c)(3) nonprofit organization”. Feel free to contact us if you’re not sure.
We encourage you to read through all these pages (Our Documentation), especially What We Offer and Processes and Limitations, and How to Apply before joining Open Collective Foundation. Our services are great for a variety of community-focused and collaborative projects, but make sure to consider your long term needs before selecting a fiscal host!
For some initiatives, being hosted by a 501(c)(3) organization may not be the right fit.
For example, if you are an open source technology project, you should consider Open Source Collective, a 501(c)(6) fiscal host.
There are also fiscal sponsors that operate without the Open Collective platform. Some may be within your sector or offer different services that fit your specific needs. Before you move forward with another fiscal sponsor, make sure to consider whether they are aligned with your mission, whether their technology and processes are smooth and straightforward, and whether they are transparent to their donors and sponsored projects.
Founding an entity and getting 501(c)(3) status comes with a significant cost, and it can take many months or even years to get 501(c)(3) status from the US Internal Revenue Service.
Although we cannot offer legal or tax advice, it is wise to consider:
The costs of engaging a lawyer and accountant
Various filing fees at the state and federal level
Long term filings and responsibilities, including an annual Form 990
Compliance requirements such as independent audits, which vary by state
All of this takes up time that could be spent directly on your mission instead.
Open Collective Foundation takes care of all of that for you. We file taxes, provide receipts to donors, manage banking and payments, and have lawyers and accountants on tap. You get access to the benefits of 501(c)(3) status as soon as we approve your application. Instead of setting up a corporation and then waiting months for IRS approval, you can get right to work.
Some groups can “get by” without setting up a legal entity using individuals’ personal bank accounts. But there are downsides:
Lack of transparency
Unequal tax and admin burden on those individuals whose bank and PayPal accounts are used
If team relationships break down, or teammates burn out, the funds can become unavailable to the rest of the group
No access to grants or tax-deductible donations (let alone automatic tax receipts)
When you join Open Collective Foundation, your group’s finances are totally transparent and the burden of administering your finances can be shared across the team. No one will have to include the group’s income on their personal taxes. Plus all of the other things we offer!
We definitely encourage you to read more about fiscal hosting to make the most informed decision for your initiative! When you are ready, check out how to get started with Open Collective Foundation.
Fiscal Sponsorship: A Balanced Overview, Nonprofit Quarterly
Fiscal Sponsorship: 6 Ways To Do It Right, by Gregory L. Colvin
What Is Fiscal Sponsorship?, Adler & Colvin
Guidelines for Comprehensive Fiscal Sponsorship, National Network of Fiscal Sponsors
Feel free to also read our listing or explore other fiscal sponsors on the Fiscal Sponsor Directory. Finding the right fit between an initiative and fiscal sponsor is a two-way street, so we welcome your questions.