What laws regulate fundraising?
Did you know that fundraising activities are regulated by state law? 39 states and the District of Columbia have laws that require a charitable nonprofit and/or professional fundraising consultants (sometimes referred to as "solicitors") to register with the state before the charitable nonprofit engages in fundraising activities in that state. There are also laws that govern the conduct of for-profit businesses that are engaging in fundraising activities (referred to as "commercial co-ventures"). Lawforchange.org provides links to the fundraising laws in each state.
Who do the laws apply to?
State laws that regulate fundraising activities depend on the state law, but typically apply to charitable nonprofits, professional fundraising consultants, and to for-profit businesses that raise funds on behalf of charitable nonprofits, in situations when a portion of sales is provided to a charitable nonprofit -- referred to as a "commercial co-venture".
What is the risk of NOT registering for fundraising purposes?
Fundraising activities that are misleading could expose a nonprofit to civil fines in addition to criminal liability for fraudulent conduct. Rather than risk criminal liability (!) make sure that you understand what laws govern fundraising in your state and take extra care not to make any misleading statements in fundraising materials. (For example, “fraudulent” conduct could include misrepresenting that a solicitation is being conducted on behalf of a charitable organization when in fact the charitable organization has no knowledge of the solicitation activity.)
What else, besides initial registration, is required?
- State law may require that your nonprofit include a “disclosure statement” on any written solicitation materials or confirmation of a pledge that the nonprofit has complied with any state registration requirements. Twelve states require nonprofits to include a disclosure statement when communicating with donors: Colorado, Florida, Georgia, Illinois, Maryland, Michigan, New Jersey, New York, Pennsylvania, Virginia, Washington State and West Virginia.
- State law may require any professional fundraising consultant hired by your nonprofit to be registered with the state. While registration may not be the nonprofit’s obligation, it is important to verify that your fundraising consultant has registered, if required to. Read about special treatment for fundraising consultants and grantwriters.
- Games of chance, such as bingo and raffles, used by some nonprofits use as fundraising vehicles, are regulated activities that typically require a license from the local or state government (or both). Check your state law (and also consider the ethical issues involved. Is it consistent with your nonprofit’s mission to support gambling?)
Are there special rules for strategic alliances that result in fundraising?
- Many state laws require nonprofits that engage in revenue-sharing activities, either with other nonprofits or with for-profits, report the shared-fundraising activity as a “commercial co-venture.” Whether or not your state requires that a written agreement governing the revenue-sharing be filed, it is very sound practice to draft a written agreement with the fundraising partner to memorialize the responsibilities of each party, and how the revenue will be split between the two (or more) parties. Know your state law requirements!
Your State Association can serve as a resource if you need guidance on the specific requirements of your state.