Outside Entities Policy
Info about Separate Legal Entities and OCF
OpenCollective Foundation (“OCF”) is a comprehensive Model A fiscal sponsor, meaning our service is designed for unincorporated initiatives (“Initiatives” and individually as an “Initiative”) that don’t have a separate legal entity of their own. This policy explains the rules for cases where an Initiative under OCF’s umbrella is also related to an external incorporated entity or EIN.

The OpenCollective Foundation Terms of Fiscal Sponsorship state:

6. In the event that Sponsee receives funding outside of the Platform (that which does not go directly into the Fund), Sponsee will immediately transfer such funds to Sponsor for deposit into Sponsee’s Fund; at no time shall Sponsee hold any funds for the Initiative outside of the Fund or utilize the services of any other fiscal sponsor during the Term of this Agreement.
Funds for Initiatives that OCF fiscally sponsors must be held by OCF, and the baseline policy is that Initiatives cannot use outside entities to perform any activities under this fiscal sponsorship relationship.
However, there are some cases where exceptions may be possible, as set forth below.
See also: OCF’s Outside Accounts Policy for information about using personal accounts and third-party payment services.

Why we need this policy

Regulations disallowing nonprofits from funneling money to outside entities, such as for-profit organizations, are in place to ensure that funds donated to charity are spent in furtherance of charitable purposes, and to prevent 501(c)(3) structures from being used for tax evasion or other illicit purposes.
OCF has a responsibility to protect its reputation and 501(c)(3) status for the sake of all Initiatives under its umbrella, and violations of this policy by a single Initiative can put that at risk. OCF has a reporting obligation to the IRS and must also undergo annual comprehensive audits.
As such, OCF must ensure that funds for all Initiatives under its 501(c)(3) umbrella are being legitimately used for charitable purposes, and that tax deductibility for donations is being correctly handled. OCF is not able to perform its oversight role effectively if Initiative operations are managed through an outside entity.

How Outside Entities May Be Used

Outside entities may be allowed if all the following criteria are met:
  • The Initiative must inform OCF about the existence of the outside entity and explain how the below criteria will be met.
  • The Initiative and the outside entity must have completely separate and distinct names, missions, activities, and budgets.
  • Only donations to the OCF-hosted Initiative qualify for tax deductibility under OCF’s 501(c)(3) status—this must be made explicit to donors, and it must be clear which entity the donor is giving to.
  • Except as otherwise provided for in this policy, money cannot flow from the OCF Initiative budget out to a related outside entity. However, the related outside entity may donate to the OCF Initiative.
  • If the outside entity is performing any services for which it intends to invoice the Initiative budget, a signed contract must be in place between OCF and the outside entity, covering which services will be performed, payment terms, and how the services help achieve the charitable mission of the Initiative.
  • Any contracts between OCF Initiatives and outside entities must be reviewed and signed by OCF staff (hosted Initiatives are not legal entities that can enter contracts independently, nor are Initiative participants authorized to act as agents of OCF for legal purposes).

Examples of generally permitted use of outside entities:

  • An entity seeking to run a charity program associated with their brand but separated from its commercial operations.
  • A dormant entity that was previously used for 501(c)(3) activities prior to joining OCF, as long as it’s not active during the term of OCF fiscal sponsorship.
  • Contracting an entity owned by or associated with Initiative participants to provide legitimate services genuinely related to furthering the Initiative’s charitable mission, as long as a signed services contract between the entity and OCF is in place.
  • Spending down a grant held by a previous 501(c)(3) fiscal sponsor where it’s not possible to move the funds to OCF (as long as OCF is made aware, in writing).
  • Moving money through outside entities in compliance with the Outside Accounts Policy.
  • Receiving donations from an outside entity for the hosted Initiative (as long as money isn’t flowing in the other direction from the Initiative to the outside entity).
  • Selling products or services through a distinct and separate outside entity where the proceeds are then donated to an Initiative under OCF (as long as buyers are made aware that their purchase is not a direct donation and isn’t tax deductible, and that the Initiative and the outside entity are separate and distinct).

The following situations are not permitted under any circumstances:

  • Simultaneously having another fiscal sponsor while being fiscally sponsored by OCF.
  • Failing to disclose the relationship between an Initiative and its participants with an outside entity that is being paid from the Initiative’s budget.
  • Signing a contract or forming a legal agreement with an outside entity without involving OCF staff.
  • Using an outside entity to enable an OCF-hosted Initiative to engage in activities not permitted under OCF’s Terms of Fiscal Sponsorship or the laws regulating 501(c)(3) nonprofit organizations, including using funds for the private benefit of for profit entities or individuals, or to influence legislation or the outcome of elections.
  • Moving money through OCF out to another entity and managing operational expenses from that outside entity (if this is your desired mode of operation, a 'Model C' fiscal sponsor may be a better fit).
  • Representing that contributions to an outside entity are donations to charity or are tax deductible based on OCF’s 501(c)(3) status (only direct donations to OCF qualify for tax deductions).

Transitioning to an outside entity

If an Initiative hosted by OCF wishes to move to another fiscal sponsor or incorporate its own entity, OCF will assist with the transition to the extent allowed by regulations.
Money donated to a 501(c)(3) nonprofit organization cannot be transferred to a for-profit entity or an individual, so in almost all cases OCF can only move an Initiative’s funds to another 501(c)(3) entity. See the termination section of the OCF Terms of Fiscal Sponsorship for more details.
If you operate or desire to form your own legal entity for your Initiative, you may wish to either form your own 501(c)(3) nonprofit organization or engage a Model C (pre-approved grant) fiscal sponsor instead of entering into a fiscal sponsorship relationship with OCF.

More Info:

Read our Policies Update / Watch our Webinar to learn more about this policy.
If you wish to use your own entity and bank account to manage funds on Open Collective, you may not need a fiscal host. Learn more.
Last modified 2mo ago