Most charitable organizations, whether public charities or a private foundation set up by a family or corporation, seek to promote the public good by bringing valuable items, services and ideas to the community. The public is right to support such endeavors. Unfortunately, on occasion the disreputable seek to take advantage of those making charitable gifts. For this reason, numerous jurisdictions have enacted registration and filing requirements to help ensure charitable solicitations are legitimate and to reduce fraud.
If your organization or its related foundation makes charitable solicitations to the public, it may be subject to laws in 41 states and the District of Columbia that require registration or submission of various filings before conducting such solicitations in those states. In fact, a failure to register or file before soliciting can result in administrative actions, civil fines and even criminal charges against the organization and members of its leadership.
Generally, where registration is required, an organization must register with the jurisdiction’s attorney general or secretary of state. Despite some standardization, each jurisdiction retains its own unique filing requirements. For example, although most states accept the Uniform Registration Statement , many of the same states also require organizations to file state-specific documents. Moreover, registration generally requires submitting supporting materials, such as a federal Form 990 and audited financial statements, depending on the amount of contributions in the prior fiscal year. Other requirements can be quite detailed, including employment histories for persons in charge of donated funds, bank account numbers and examples of brochures and other materials. In some jurisdictions, the organization must also qualify to do business in the state prior to registering to solicit. This may require designating a registered agent in that jurisdiction.
For organizations that use a professional fundraiser, even greater reporting requirements apply. This often includes identifying information regarding the fundraiser, amounts paid for such services, and copies of any contracts between the parties. In many jurisdictions, the professional fundraiser must also register under provisions specific to professional fundraisers. Of note, organizations that merely advise charities about solicitation strategies may be required to register as so-called “fundraising counsel,” even if the organization conducts no actual solicitations. This can create challenges in the relationship between the parties if the fundraiser or counsel elects not to register under applicable laws. The organization will need to assess the effect, if any, under state law on its own registration status and solicitation activities if the fundraiser or counsel elects not to register.
In some cases an organization that is neither a charity nor otherwise engaged as a professional fundraiser or fundraising counsel will offer to donate funds or items to a charity if a consumer purchases one of the organization’s products. For example, a common campaign involves a business agreeing to donate one dollar or a certain item, such as a toy or tree, to a specific charity if the consumer purchases a certain product from the business. These campaigns can subject the business to regulation as a commercial co-venturer in a growing number of jurisdictions. State laws governing commercial co-venturers vary widely in their scope and application. However, in many states commercial co-venturers must register, submit certain filings, enter into written agreements with the beneficiary, and maintain certain records. A failure to do so can result in potential administrative, civil or criminal penalties, some of which are significant.
For organizations that decide to solicit using the Internet, certain additional guidelines are helpful with respect to registration requirements. Approved as advisory guidelines by the National Association of State Charity Officials in 2001, the Charleston Principles were originally created in 1999 at a meeting in Charleston, West Virginia to provide organizations with guidance regarding registration requirements for charitable solicitations via the Internet.
The Charleston Principles bifurcate state law requirements for Internet solicitation between organizations domiciled within and without a state. An organization is domiciled in the state where the organization’s principal place of business exists. In these cases, if the organization uses the Internet to conduct charitable solicitations in that state, then the organization must register in that state. For organizations not domiciled within the state, the guidelines are more complex. The organization must register if:
a. its non-Internet activities alone are sufficient to require registration;
b. the organization either (i) specifically targets persons physically located in the state for solicitation or (ii) receives contributions from the state on a repeated and ongoing, or substantial, basis through its Web site; or
c. the organization solicits contributions through a site that is not interactive but invites offline contributions or otherwise establishes contacts in the state to promote the Web site. Consequently, organizations are well-advised to review their Internet-based solicitation programs, whether interactive (e.g.,online donations) or passive (e.g., donors call to make a donation) to ensure compliance with the applicable jurisdiction’s registration and filing requirements.
Once the initial registration is complete, organizations must file annual renewals by certain dates, which vary depending on the jurisdiction. Such renewal filings are subject to much of the same complexity and variation discussed above for initial registrations. Moreover, for organizations with a fiscal year that differs from the calendar year, additional complications can arise for annual renewals.
With a process that looks like a hassle, why bother to register at all?
First, consider the potential for civil fines and criminal charges if an organization fails to register. States have significant discretion whether to invoke sanctions against organizations and their leaders. Generally, a failure to register resulting from an administrative oversight is unlikely to garner more than a fine and the organization’s promise of future compliance. However, a knowing failure to register despite the requirements of law could have more serious consequences, particularly if regulators seek to make an example of the organization as a warning to others. These laws were enacted to protect the public from individuals and entities that fraudulently pose as charities, and some regulators zealously guard the public from fraud by strictly enforcing these laws.
Second, negative publicity resulting from the failure to comply with these laws can damage an organization’s reputation in the community and suppress the very donations sought. In most cases, this represents a common sense reason to register, as the potential for negative publicity if the public becomes aware that the organization is not in compliance with state law is significant.
As charities know, particularly in difficult economic times when the pool of potential donors shrinks, an upstanding reputation, including strict compliance with applicable laws, is key to successful solicitation campaigns. Too often, a sullied reputation—whether deserved or not—suppresses giving and can defeat an organization’s best efforts to meet its mission. Therefore, despite the costs of compliance, organizations are well-advised to comply with these laws—not only to avoid civil and criminal sanctions—but also to preserve their good name and reputation in the community—for that is often their key asset.