When your nonprofit is ready for corporate sponsorship
Corporate giving is a great source for fundraising. But what is corporate sponsorship?
Corporate sponsorship support is when a business gives financial support to a nonprofit to further the its mission. The nonprofit generally acknowledges that the business has supported its activities, programs, or special event.
Corporate sponsorships attract the attention of for-profit businesses because they can connect their brand with a certain charitable cause. This may help businesses attract new customers or bolster the company’s reputation thanks to the “halo effect” of the nonprofit’s good will. Charitable nonprofits, in turn, receive financial support and may also get increased attention from the media and the public, in-kind services, and/or product donations.
Examples? Macy’s “Go Red” Campaign with the American Heart Association is a well known corporate sponsorship.
A successful corporate sponsorship benefits both the charitable nonprofit and its sponsor. But be careful, there are tax issues to be aware of. Like what? Well, in order for a corporate sponsorship to be appropriate and legal, the benefit to the for-profit entity should not outweigh the benefit to the nonprofit. What the heck does that mean? It gets a little murky, to be honest.
Tax Implications of Sponsorship
Be aware that corporate sponsorships can result in unintended tax liability, even for tax-exempt charitable nonprofits. Sometimes, it’s hard to distinguish between non-taxable charitable contributions and payments by a business to the nonprofit, which the IRS will characterize as “unrelated business income.”
Is your nonprofit ready to approach a corporate sponsor? Consider these “readiness” factors before reaching out to recruit corporate sponsorships:
- Identify the value proposition that will attract a business to sponsor your nonprofit’s mission or special event. (Do you know what the potential sponsor wants? What would “success” look like for the sponsor?)
- What goals do you have for the nonprofit, besides financial contributions? (publicity? volunteer/pro-bono assistance? gifts-in-kind?)
- Document both parties’ expectations, obligations, and deliverables in writing. A written agreement is KEY! Most successful sponsorships are based on a written sponsorship agreement.
- Keep in mind that anytime a nonprofit works with a for-profit, the charitable nonprofit has an obligation to avoid creating a private benefit. For example, when the benefit to the for-profit business outweighs the benefit(s) to the charitable nonprofit. Major penalties can result.
- Fun video advice on how to approach corporate sponsors (Do Something)
- Turning the tables: Presenting a business value proposition” gives advice for nonprofits preparing to approach a corporate sponsor. (Bruce Burtch)
- What you can learn from Jay Z and Barney’s about choosing your partners (Sponsorship Strategist)
- Handling the ethical dilemmas that corporate partners can bring to a charity (Chronicle of Philanthropy)
- Model Guidelines for Nonprofits Evaluating Proposed Relationships with Other Organizations [PDF] (Tobacco-Free Kids)
- 10-step guide to cultivating corporate sponsors (The Fundraising Authority)
- 8 ways to foster sponsorship relationships (Third Sector Today)