Hey Peter, thanks for the response. I’ve upvoted, but I feel like it still leaves open the question of why a third party service can’t get you to the point where you ‘just don’t even need to think about HR, payroll, legal compliance, finance, getting and having your own US 501c3 status, etc. is what I’m offering, but unfortunately no amount of money could ever make that service work without the legal incorporation.’
Assume the service in question is an EA-aligned org—the same people who are currently running those ops at RP special projects and Effective Ventures, for example. What goes wrong if a) you throw a bunch of money at them as a retainer to work on your stuff whenever you need them to, or b) they’re a nonprofit who can commit to supporting your org inasmuch as a reasonable cost-benefit calculation (that takes into account eg costs of uncertainty) suggests they should do?
You legally can’t just rent/borrow a 501c3 status from a third-party… you have to be legally a part of the org with the 501c3 status to also have that status (though of course the org can give you credible promises of independence, as RP does).
Same goes for directly handling books and directly administering payroll. There certainly are third-party services that help a lot with books and payroll (e.g., Quickbooks, Sage, JazzHR, Remote… RP uses those) but they can’t handle your books and payroll 100% entirely on your behalf without being legally responsible for them.
I know becoming a charity is difficult, but from having been through it myself, it seems mostly so because new charity founders have no idea what kind of legal minefield they’re walking into. My memory of our process was that if we’d done it with a knowledgeable lawyer available from the beginning it would have taken total <10 hours work and perhaps a few months of waiting, during which you wouldn’t be eligible for charity tax benefits (this was in the UK). Does that sound fair/similar to the US?
Re books and payroll, what if there were a company or nonprofit that was willing to take on that legal responsibility? Are you saying they simply wouldn’t be allowed to do so? If so, which specific element of it would be forbidden?
My understanding is that books and payroll/finance can in fact be outsourced, and this is common practice. In the US, there are charitable accounting services (like Jitasa) that do all books and file most/all required financial filings for charities (this still requires some work on the charity’s end). There are PEOs (like JustWorks and Insperity) that in some cases run all of HR (and are legally responsible for it). To my understanding PEOs can be used with charitable organizations.
I think there may be some efficiency gains from centralization, like covering fixed costs (such as ~$10,000/year to pay a legal firm to register to fundraise in all US states) but they’re small or insignificant when you reach a multimillion-dollar scale. I’d imagine the all-in gains in avoiding fixed costs to be in the low tens of thousands of dollars.
At a larger scale, becoming independent could even be a cost savings! Administering lots of tiny projects can be operationally burdensome for a fiscal sponsor. There are also benefits of being independent, like being able to use your own operational processes, having a separate legal existence, etc.
That’s why fiscal sponsorship services , e.g. what’s provided by EV and RP, are usually offered to small/burgeoning or temporary projects in the broader charitable world, rather than being used by massive organizations. Accumulated funds at a fiscal sponsor can be easily donated to the new entity, although the later the spin out, the larger the operational complexity I’d imagine.
These days, setting up a company or charity is as easy as filling out a website, no formal legal firm required if it’s pretty standard. Stripe Atlas and Clerky are popular for for-profit startups, and Resilia is one such service for nonprofits.
Hey Peter, thanks for the response. I’ve upvoted, but I feel like it still leaves open the question of why a third party service can’t get you to the point where you ‘just don’t even need to think about HR, payroll, legal compliance, finance, getting and having your own US 501c3 status, etc. is what I’m offering, but unfortunately no amount of money could ever make that service work without the legal incorporation.’
Assume the service in question is an EA-aligned org—the same people who are currently running those ops at RP special projects and Effective Ventures, for example. What goes wrong if a) you throw a bunch of money at them as a retainer to work on your stuff whenever you need them to, or b) they’re a nonprofit who can commit to supporting your org inasmuch as a reasonable cost-benefit calculation (that takes into account eg costs of uncertainty) suggests they should do?
The problem is laws.
You legally can’t just rent/borrow a 501c3 status from a third-party… you have to be legally a part of the org with the 501c3 status to also have that status (though of course the org can give you credible promises of independence, as RP does).
Same goes for directly handling books and directly administering payroll. There certainly are third-party services that help a lot with books and payroll (e.g., Quickbooks, Sage, JazzHR, Remote… RP uses those) but they can’t handle your books and payroll 100% entirely on your behalf without being legally responsible for them.
I know becoming a charity is difficult, but from having been through it myself, it seems mostly so because new charity founders have no idea what kind of legal minefield they’re walking into. My memory of our process was that if we’d done it with a knowledgeable lawyer available from the beginning it would have taken total <10 hours work and perhaps a few months of waiting, during which you wouldn’t be eligible for charity tax benefits (this was in the UK). Does that sound fair/similar to the US?
Re books and payroll, what if there were a company or nonprofit that was willing to take on that legal responsibility? Are you saying they simply wouldn’t be allowed to do so? If so, which specific element of it would be forbidden?
Speaking for the US:
My understanding is that books and payroll/finance can in fact be outsourced, and this is common practice. In the US, there are charitable accounting services (like Jitasa) that do all books and file most/all required financial filings for charities (this still requires some work on the charity’s end). There are PEOs (like JustWorks and Insperity) that in some cases run all of HR (and are legally responsible for it). To my understanding PEOs can be used with charitable organizations.
I think there may be some efficiency gains from centralization, like covering fixed costs (such as ~$10,000/year to pay a legal firm to register to fundraise in all US states) but they’re small or insignificant when you reach a multimillion-dollar scale. I’d imagine the all-in gains in avoiding fixed costs to be in the low tens of thousands of dollars.
At a larger scale, becoming independent could even be a cost savings! Administering lots of tiny projects can be operationally burdensome for a fiscal sponsor. There are also benefits of being independent, like being able to use your own operational processes, having a separate legal existence, etc.
That’s why fiscal sponsorship services , e.g. what’s provided by EV and RP, are usually offered to small/burgeoning or temporary projects in the broader charitable world, rather than being used by massive organizations. Accumulated funds at a fiscal sponsor can be easily donated to the new entity, although the later the spin out, the larger the operational complexity I’d imagine.
These days, setting up a company or charity is as easy as filling out a website, no formal legal firm required if it’s pretty standard. Stripe Atlas and Clerky are popular for for-profit startups, and Resilia is one such service for nonprofits.