Fiscal Sponsorship Through FLOSS Foundations

Discussion

Summarized from Tony Sebro by Martin Michlmayr:

"The alternative solution is to create a relationship with an existing FOSS foundation that can act as a fiscal sponsor. It's important to note that a fiscal sponsor does not sponsor a project through monetary contributions. Its function is to provide a legal structure and environment in which projects can operate and raise funds. Many fiscal sponsors also offer a range of services to projects, typically for a fee or by taking a certain percentage from a project's donations. Sebro's talk explained two types of fiscal sponsors: comprehensive fiscal sponsors and grantor/grantee fiscal sponsors.

When a project joins a comprehensive fiscal sponsor, they sign a fiscal sponsorship agreement (FSA) and become fully integrated into the sponsor—in a sense, it's like a merger and acquisition in which the fiscal sponsor takes over the open source project. The fiscal sponsor supervises the project to ensure that it follows rules of the IRS (Internal Revenue Service, the US tax agency) and is in compliance with the mission of the fiscal sponsor (which is broadly defined to encompass many projects). In the case of Software Freedom Conservancy, technical decisions and questions of infrastructure are decided by the project. The Apache Software Foundation (ASF), on the other hand, dictates parts of the development process (the Apache Way). In return for joining a comprehensive fiscal sponsor, projects will benefit from the service portfolio offered by the organization. This can include legal services, bookkeeping, conference organization, and more. Software Freedom Conservancy, for example, offers a service plan from which members can choose à la carte. Furthermore, developers are shielded from risk because they are acting as volunteers for the non-profit.

There are a number of advantages of this type of structure: overhead is shared, the fiscal sponsor has 501(c)(3) status already, and it is likely to have a lot of experience running a non-profit so it can offer reliable services and solid advice. A drawback is a certain loss of autonomy: since a fiscal sponsor is responsible for several projects, they are likely to be more conservative than a single project may be on its own. Another risk is that pooled resources imply pooled risk: if member A owes funds, would the assets of members B and C be at risk? Sebro cited the Charitable Trust Doctrine which says that donations have to be spent for the declared charitable purposes under which the donations were solicited. Spending member B's resources to pay for debts caused by member A may be in conflict with this doctrine, which could therefore provide some protection. Sebro mentioned a case that held "New York's long-standing policy honoring donors' restrictions on the use of the property they donate has greater weight than the claims of creditors." While there is some uncertainty in this area, Sebro argued that the best way to manage this problem is through good governance." (https://lwn.net/Articles/548542/)