Like other industries, many states regulate fundraising activities. As many as forty states require charitable nonprofits to register with the state before they can solicit any donations from residents of that state. Commonly, these regulations apply to nonprofit organizations, professional fundraisers, fundraising counsel, and commercial co-ventures.
What Activities Fall Under “Charitable Solicitation?”
Most nonprofits engaged in fundraising activities are required to file a registration form with all states in which they are soliciting donations. Generally speaking, “soliciting” refers to the act of asking for something of value, and it can take many forms. Surprisingly to most nonprofits, registration does not hinge on donations or the receipt of something of value—it is simply the asking for something of value. Traditional examples include fundraising events, direct mail, phone calls, emails, and radio and television ads. In addition, a website that includes a “Donate” button (including social media channels) may constitute a charitable solicitation. This requirement, known as “charitable solicitation registration,” is required prior to engaging in any fundraising or solicitation activity.
What are the Requirements for Registration?
While the requirements can be complex and vary greatly from state to state, most require a form of some sort to be filed. Additionally, states may require fees, bonds, or the designation of a statutory agent. Registration requirements may also vary depending on whether the nonprofit is an in-state or out-of-state entity. Some states require nonprofits to file additional forms when working with third parties such as professional fundraisers or when engaged in commercial co-venture agreements.
There’s no doubt that registration is burdensome on nonprofits, especially for those that solicit donations in multiple states or nationwide. Typically, these organizations are run by volunteers and minimal, if any, staff. However, the reason for registration is a valid one. Unfortunately, there are many illegitimate nonprofits that take advantage of donors. These requirements endeavor to minimize such illegal activity. States also strive to ensure that charities are adhering to their tax-exempt purposes. After the initial registration, most states will require nonprofit organizations to file an application to renew their charitable solicitation registration annually and pay the renewal fee. States that do not require any renewal, require other forms such as an annual financial report, IRS Form 990, etc.
What are the Penalties for Not Registering?
Failure to comply with charitable registration requirements can be devastating for nonprofits. Specifically, failure to register or renew your charitable solicitation registration application could result in state fines, late fees, and penalties; civil or criminal action against officers and directors; removal of tax-exempt status; denial of the right to solicit funds; and negative publicity.
Understanding and complying with each state’s solicitation registration requirements doesn’t need to be overwhelming. Working with experienced legal counsel can help ease the process, keep you in compliance, and most important, allow you to focus on what really matters – fulfilling your nonprofit organization’s mission.
Have questions about your charitable fundraising programs? We can help.
A Senior Attorney at M&S, Erica draws on her previous experience as in-house counsel to advise clients on federal and state consumer protection laws and defend them in litigation and government enforcement actions.