Most organisations that do research, advocacy and product end up with more than one entity. These are the established patterns.
Fiscal sponsorship (the bridge)
An existing 501(c)(3) accepts grants and donations on your behalf and passes them through, taking a fee (commonly 5–15%). Two flavours:
- Model A (comprehensive): the project is legally part of the sponsor; staff are sponsor employees. Least autonomy, least administrative burden.
- Model C (pre-approved grant relationship): you remain a separate entity and the sponsor regrants to you. More autonomy, more paperwork.
Use it to start work immediately while Form 1023 is pending, or to test whether a standalone entity is warranted at all. Get the termination and asset-transfer terms in writing before signing — the ability to leave with your funds and your IP is the whole point.
501(c)(3) + 501(c)(4) or (c)(6)
The classic advocacy structure. The c3 does research and public education with deductible, foundation-eligible money; the affiliate lobbies without limit.
Requirements to keep it clean:
- Separate bank accounts, books, and boards (overlap is allowed; identical boards invite scrutiny).
- A written cost-sharing / shared-services agreement at fair market value, with real time tracking for anyone splitting their week.
- The c3 may fund the affiliate only for c3-permissible activity, and must be able to show it did not subsidise lobbying.
- Distinct public identity — different letterhead, clear disclaimers.
501(c)(3) + wholly-owned LLC
The charity owns a single-member LLC that carries on commercial activity. Uses:
- Liability shielding for a risky programme.
- Housing earned revenue so it doesn’t muddy the charity’s books — note that a disregarded single-member LLC’s income still flows up to the parent for UBIT purposes, so this is about containment and clarity, not tax avoidance. A taxable subsidiary C-corp is the structure that actually blocks UBIT, at the price of paying corporate tax.
- Joint ventures with for-profit partners, where the charity must retain control over charitable aspects.
For-profit with a captive foundation
A company funds an affiliated private foundation or a donor-advised fund. Gets you philanthropic reach and reputational benefit, but the foundation is subject to self-dealing rules that prohibit most transactions with the company. Not a way to route company work through charitable money.
PBC with mission-lock provisions
If the work is fundamentally commercial but you fear drift: a Delaware public benefit corporation with a specific stated benefit purpose, a supermajority requirement to change it, and — more effective than any of that — founder control via a dual-class structure or a golden share held by a mission trustee. Charter language constrains directors; control constrains outcomes.
Sequencing advice
- Start with one entity and a fiscal sponsor if you need charitable money before you have status.
- Add the second entity when a specific, funded activity requires it — not in anticipation. Two entities means two sets of books, two boards, two 990s, and an agreement you must actually follow.
- Never move money between affiliated entities without a written agreement and a contemporaneous record of what it bought.