Twenty-six states require fundraising counsel to register prior to providing services. The state’s interest is to protect charitable assets for their intended use and to ensure that donations contributed by state residents are not misapplied through fraud or other means.

Who Qualifies as a Fundraising Counsel?

A fundraising counsel (“FRC”) is generally a person or entity paid to plan, manage, advise, counsel, consult, or prepare materials for, or with respect to, a charitable solicitation. A fundraising counsel does not solicit contributions or have custody of solicited funds.  Most often, an FRC is paid a fixed fee or rate rather than a percentage of contributions collected. Consultants providing services that fit within the definition of a fundraising counsel, but who also solicit contributions, have custody of funds, or are compensated on a percentage basis may be considered “professional fundraisers” under some state laws. Professional fundraisers are subject to greater regulatory obligations, including obtaining bonds and filing detailed reports after each solicitation campaign.

Typically, an FRC provides strategic planning services with the goal of improving a charity’s fundraising activities in order to increase donations. States define “fundraising counsel” broadly, however, and thus FRC services include a variety of activities, such as the following:

• A company hired to design and manage a direct mail campaign
• A company hired to manage an annual fundraising gala
• An individual hired to design a digital fundraising strategy
• A firm hired to develop a major gift or capital campaign strategy
• An individual hired to prepare fundraising materials, including providing advice on how best to use the materials to maximize fundraising results
• An individual hired to coach an organization’s development staff or volunteers who are conducting peer-to-peer fundraising campaigns
• An online fundraising platform that is paid by a charity to help optimize its fundraising efforts. (This might include providing customized advice on how to better use the platform’s tools to maximize the charity’s fundraising success. Since each state has adopted slightly different definitions of “fundraising counsel,” states may reach varying conclusions on a platform’s classification.)

Where Do Fundraising Counsels Need To Register?

The key question in determining whether a fundraising counsel must register is whether sufficient contacts exist between the fundraising counsel and the state such that it is not fundamentally unfair for the state to subject the fundraising counsel to its registration and reporting requirements. The fundraising counsel must purposefully avail itself of the privilege of conducting activities within the state. Several Supreme Court cases have addressed whether a fundraising counsel has enough contact with a state to be subject to its regulatory jurisdiction. Interpretation of these cases suggests the following takeaways:

• Fundraising counsel should register in the state where the charity is located;
• Fundraising counsel may have to register in the state where they are domiciled;
• Fundraising counsel that advise charities with respect to solicitation in particular counties, states or regions or that, in some other way, target a particular state with its fundraising counsel activities should register in the targeted states. For example, a fundraising counsel that, as part of managing a direct mail campaign, recommends specific donor mailing lists, should register in the states where the direct mail recipients reside.

Online fundraising platforms are often structured to avoid classification as a fundraising counsel. Common reasons for falling outside the fundraising counsel definition are either that the online platform is directed at providing technology rather than consulting services, or the platform does provide fundraising counsel services but is also collecting a percentage of funds raised, thereby triggering categorization as a professional fundraiser.

Determining whether an online fundraising platform is classified as fundraising counsel, and if so, where it should register, requires a nuanced analysis that takes into consideration published guidelines for state regulation of online fundraising. A concise analysis of this issue is contained in my colleague Karen Wu’s Nonprofit Times article A Moving Target: The regulation of online fundraising platforms

Fundraising Counsel Contracts

In addition to the registration requirements, state charitable solicitation statutes require that contracts between a charity and a fundraising counsel include certain provisions. Common contract provisions required by state statute including the following:

• Legal name/address of the charity
• Statement of the charitable purpose for which the solicitation campaign is being conducted
• A clear statement of the fees to be paid to the fundraising counsel
• The effective/termination dates of the contract
• A statement that the fundraising counsel will not have control or custody of funds
• A statement that the charity exercises control and approval over the content, volume and/or frequency of any solicitation
• California and New York require lengthy cancellation provisions designed to allow the charity cancel the contract within 10-15 days of signing without penalty
• Several states require the contract to be signed by two authorized officials of the charity

The services fundraising counsel provide can be of great value to nonprofit organizations. Understanding the regulatory framework governing fundraising counsels will help you avoid missteps that can lead to actions by state regulators, including fines and penalties. It is incumbent on both the fundraising counsel and its charity clients to take the steps that ensure compliance under state charitable solicitation laws seriously. If in doubt, it’s always a good idea to seek counsel.

The post Advising Nonprofits on their Fundraising Strategy? You May Need to Register appeared first on Perlman & Perlman.

Legal audits may be particularly timely when an organization undergoes significant organizational changes, including leadership changes, a potential merger or acquisition, or preparation to enter a major growth phase.

Key Areas Covered in a Legal Audit

A legal audit reviews an organization’s compliance and organizational health across a variety of key areas, including the following:

1. Corporate Governance

• Review of articles of incorporation and bylaws
• Verification of current board members and officers
• Board meeting minutes and adherence to governance policies
• Conflict of interest policy and disclosures

2. Tax-Exempt Status and IRS Compliance

• IRS determination letter (501(c)(3), etc.)
• Annual filings (Form 990 or equivalent)
• Compliance with public support test (if applicable)
• Unrelated Business Income (UBI) issues

3. Employment and Labor Law

• Employee vs. independent contractor classification
• Employment contracts and offer letters
• Compliance with wage, hour, and anti-discrimination laws
• HR policies, employee handbook, and training procedures
• Volunteer agreements and waivers

4. Fundraising and Charitable Solicitation

• State charitable registration compliance (multi-state if applicable)
• Donor acknowledgment letters and receipts (substantiation)
• Restricted vs. unrestricted funds tracking
• Compliance with fundraising regulations and platforms

5. Contracts and Agreements

• Review of leases, vendor contracts, MOUs, and grant agreements
• Intellectual property ownership (e.g., logos, content, trademarks)
• Confidentiality and data-sharing agreements
• Insurance policies and liability coverage

6. Financial Oversight and Internal Controls

• Financial policies and procedures
• Audit requirements and practices (external or internal)
• Recordkeeping and document retention policies

7. Risk Management and Insurance

• General liability, directors & officers (D&O), and other coverage
• Event liability and waivers
• Crisis management and disaster recovery plans

8. Privacy, Data, and Technology

• Data privacy and cybersecurity practices
• Website terms of use and privacy policy
• Compliance with applicable data protection laws (e.g., GDPR, CCPA)

Deliverables of a Legal Audit

The findings of a legal audit are often summarized in key documents that allow the organization to make decisions on next steps, and may include the following:

• Audit report summarizing findings and recommendations
• Compliance checklist for ongoing monitoring
• Action plan with prioritized legal fixes
• Updated or new policies, procedures, or templates

The Importance of a Proactive Approach to Compliance

In today’s complex regulatory environment, nonprofit organizations must actively manage legal compliance to protect their mission, reputation, and tax-exempt status. A legal audit provides a structured opportunity to evaluate vulnerabilities, adopt best practices, and strengthen organizational governance. By identifying and addressing potential legal risks early, nonprofits can prevent costly issues and build a solid foundation for long-term success. Whether preparing for growth, funding opportunities, or ensuring daily compliance, a legal audit is a valuable tool for any organization dedicated to operating with integrity and impact.

The post Thinking about a Compliance Check-Up?  Consider a Nonprofit Legal Audit. appeared first on Perlman & Perlman.

How the New Law Defines a “Foreign Source of Concern”

According to Senate Bill 700, a “foreign source of concern” means any of the following:  

1. The government or any official of the government of a foreign country of concern; 
2. A political party or member of a political party or any subdivision of a political party in a foreign country of concern;
3. A partnership, an association, a corporation, an organization, or other combination of persons organized under the laws of or having its principal place of business in a foreign country of concern, or a subsidiary of such entity;
4. Any person who is domiciled in a foreign country of concern and is not a citizen or lawful permanent resident of the United States;
5. An agent, including a subsidiary or an affiliate of a foreign legal entity, acting on behalf of a foreign source of concern; or
6. An entity in which a person, entity, or collection of persons or entities described in paragraphs 1-5 above has a “controlling interest”. ¹

“Foreign countries of concern” are designated as the People’s Republic of China, the Russian Federation, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Republic of Cuba, the Venezuelan regime of Nicolás Maduro, or the Syrian Arab Republic, including any agency of or any other entity under significant control of such foreign country of concern. See Fla. Stat. § 286.101(1)(b).

Potential Penalties for Noncompliance

For a first violation of the new law, the Florida Department of Agriculture and Consumer Services (“Department”) will not take punitive action if the charitable organization satisfies all of the following requirements:

1. Provides the Department with a solicitation or contribution form containing an attestation from such foreign source or country of concern in which the person, country, or entity falsely certifies that they are not a foreign country of concern or a foreign source of concern;
2. Provides the Department with a copy of a refund to the foreign source or country of concern within 30 days after notification by the Department of the prohibited act; and
3. Provides the Department with a plan of action to prevent the charitable organization from accepting contributions from a foreign country or source of concern in future solicitation activities.

Note that the requirements to avoid any punitive action on a first violation are so specific that the organization could really only avoid a punitive action by taking proactive steps to implement measures to comply with the new requirements. A second or subsequent violation may lead to additional consequences, including financial penalties and/or cancellation of the organization’s charitable solicitation license. 

Establishment of an “Honest Services Registry”

The law requires the Department to establish a voluntary “Honest Services Registry” accessible on its website. This registry will provide Florida residents “with the information necessary to make an informed choice when deciding which charitable organizations to support.” 

Charitable organizations can be listed on the Honest Services Registry by submitting a form prescribed by the Department with an attestation statement confirming that the organization does not accept or solicit contributions, funding, support, or services from any foreign source of concern, directly or indirectly. The organization must also certify that a foreign source of concern does not influence its messaging and content. 

New Registration Attestation Requirement

Additionally, the law requires charities to include attestations as part of their charitable registration filing in Florida, confirming they are either not involved in state and local election-related activities (including organizations that are prohibited by federal or state law from engaging in such activities) or, if they are engaged in election-related activities that would require registration with the Florida Department of State, that they are properly registered.

Tips for Complying with Senate Bill 700

Organizations should consider taking steps to ensure their compliance with the new requirements in Florida Senate Bill 700, which may include the following:

• Revise your solicitation materials, including disclosures on your organization’s website donate page or third-party fundraising platforms, to include an affirmation statement confirming that the person making a donation is not a foreign source of concern.
• Coordinate with online donation vendors to block contributions originating from addresses in foreign countries of concern.
• Review and return any donations from foreign sources of concern that the organization receives in response to solicitation efforts targeting Florida. 
• Educate your board, fundraising staff and volunteers on the new rules and update your gift acceptance policies accordingly so that everyone involved in fundraising can spot prohibited foreign donors and the proper process for declining or refunding such gifts.

1. The term “controlling interest” means the possession of the power to direct or cause the direction of the management or policies of an entity, whether through ownership of securities, by contract, or otherwise. A person or an entity that directly or indirectly has the right to vote 25 percent or more of the voting interest of the company or is entitled to 25 percent or more of its profits is presumed to possess a controlling interest. ↩︎

The post New Florida Law Restricts Foreign Support to Charities Soliciting in the State appeared first on Perlman & Perlman.

What is the solicitation of funds for charitable purposes?

Charitable fundraising is the act of asking for a gift, which may be in the form of cash or non-cash items, to benefit a charitable organization or charitable purpose. Although there is no standard definition of charitable purpose among the states that regulate charitable fundraising activities, it typically encompasses benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare, advocacy, public health, environmental conservation, civic, or other charitable objectives.

It’s important to understand that the act of soliciting (i.e., asking for a gift) triggers the applicable regulations. Solicitations can occur in any form where a request is made for a gift to support a charitable organization or purpose. Examples include, but are not limited to telephone, face-to-face interaction, websites, online platforms, emails, direct mail, tickets for fundraising events, purchase of goods to benefit a charitable organization, raffles, bingo, sweepstakes, auctions, television or radio ads, and social media.

Who is subject to the charitable solicitation rules?

The “persons” (which can include an individual, organization, trust, foundation, group, association, entity, partnership, corporation, society, or any combination thereof) soliciting charitable contributions can generally be classified into four types: charitable organizations, professional fundraisers, professional fundraising counsels, and commercial co-venturers.

Charitable Organizations
A charitable organization is one that is established for a charitable purpose. Whether an organization has tax-exempt status or may receive tax-deductible contributions is a completely separate question from whether it is considered to be a charitable organization under state law. So, although “charitable organizations” certainly include 501(c)(3) tax-exempt organizations recognized as charitable by the IRS, it may also include other Section 501(c) organizations, other nonprofit organizations defined by state law, or, in some states, even for-profit entities. In essence, the important consideration is whether an organization engages in the solicitation of contributions to support a charitable purpose.

In some states, depending on the amount of total contributions or the nature of their activities, charities such as religious or educational institutions, hospitals, and membership organizations may be exempt from registration. Additionally, organizations that solely solicit via the Internet (and do not engage in any targeted activity directed to any state) may not be required to register in any state—other than in the state in which they are domiciled.

There are forty-one states plus the District of Columbia that mandate charitable organizations to register if they want to request donations from residents. The registration involves submitting a state registration form, providing a copy of the organization’s IRS Form 990 (if applicable), financial statements (which may need to be audited, depending on the organization’s annual revenue), copies of contracts with fundraisers and commercial co-venturers, and a filing fee. Additional documentation that might be required during the initial registration process includes a copy of the organization’s charter, bylaws, and IRS determination letter (if the organization qualifies for tax-exempt status).

Professional Fundraisers
A professional fundraiser (PFR), also known as a professional solicitor, paid solicitor, or commercial fundraiser, is a hired individual or firm that solicits contributions on behalf of a charitable organization in exchange for compensation. They may also have custody and control over the contributions received and play a role in managing fundraising campaigns. Professional fundraisers can include telemarketers, door-to-door solicitors, and others who solicit donations in person.

In forty-three states, PFRs are required to register, post a surety bond, file contracts with their nonprofit clients, and submit campaign financial reports. Additionally, many states require professional fundraisers to disclose their status as a paid solicitor before requesting a contribution.

Professional Fundraising Counsels
A professional fundraising counsel (FRC) is a paid entity that provides planning, consultation, advice, and design of solicitation materials on behalf of a charitable organization. They do not directly make solicitations. Generally, if an FRC is compensated based on a percentage of the funds raised or has control of contributions, it will be considered a PFR. Examples of FRCs include strategic consultants, direct mail consultants, and fundraising event planners.

Currently, thirty states require FRCs to register and file contracts. Some states also require them to post bonds and file campaign financial reports.

Commercial Co-venturers
A commercial co-venturer (CCV) is a for-profit entity that doesn’t typically raise funds but instead promotes that the purchase or use of its goods or services will support a charitable organization or charitable purpose. A typical example of a CCV is a retail store that pledges to donate a percentage of the purchase price or a specific amount per unit sold to a charitable organization.

Currently, up to seven states require some combination of registration, contract filing, posting of a bond, and/or filing of a campaign financial report. Additionally, around twenty other states regulate this activity by mandating specific contract terms or point-of-sale disclosures but do not require registration or contract filing by the CCV. Some states also require the charitable organization benefiting from the CCV promotion to file and/or report the CCV contract.

What about Internet solicitations?

Most state statutes require registration for internet solicitations that reach residents of the state. However, for a state to impose its regulations on an entity’s online solicitation activities, the entity must have “minimum contacts” with that state. States recognize that enforcing registration requirements for every internet solicitation is nearly impossible. In 2001, the National Association of State Charity Officials (NASCO) issued guidelines called the Charleston Principles. These principles are not binding laws, but NASCO encourages state charity regulators to use them as practical guidelines for applying their state laws to online fundraising activities.

The principles apply to any of the regulated entities that solicit contributions via the Internet (i.e., charities, PFRs, FRCs, and CCVs) and summarize the application of state registration and reporting regimes as follows:

Entities domiciled in a state are those whose main place of business is in the state. According to the Principles, having a physical presence in the state, like a branch or regional office, can also indicate state jurisdiction. 

Out-of-state entities that engage in non-internet activities requiring registration in the state (e.g., direct mail or inbound telephone solicitation) fall under state jurisdiction.

Out-of-state entities that solicit through an interactive or non-interactive website and either (a) specifically target individuals in the state or (b) receive regular contributions from the state on a ‘repeated and ongoing’  or ‘substantial” basis by the website solicitation.

The definition of ‘repeated and ongoing’ or ‘substantial’ contributions is left to individual states by the Principles. Currently, Colorado, Mississippi, and Tennessee have formally adopted numerical thresholds by regulation. In Colorado, an entity is considered to have received ‘repeated and ongoing’ or ‘substantial’ contributions if it gets at least fifty online contributions, or the lesser of $25,000 or 1% of its total contributions, in online contributions during a fiscal year. In Mississippi, an entity receives ‘repeated and ongoing’ or ‘substantial’ contributions if it receives at least twenty-five contributions or $25,000 in online contributions in a year. In Tennessee, an entity receives ‘repeated and ongoing or ‘substantial’ contributions if it receives at least one hundred contributions or $25,000 in online contributions in a year.

What are the disclosures that need to be made at the point of solicitation?

Some states require organizations to include specific disclosure statements on all written materials when soliciting donations. These disclosures must include information about how to obtain additional details about the organization and provide contact information for certain states. The requirements apply to charitable organizations and professional fundraisers. 

The disclosure notice should be included on all printed solicitations, as well as written confirmations, receipts, and contribution reminders. Examples of printed solicitations typically include direct mail, fliers, or newsletter solicitations. However, written solicitations can also include emails or requests for donations on an organization’s website, such as a donate button or a link to donate.

Despite seeming burdensome, these disclosures can guide potential donors to a specific representative within the organization or to the organization’s website for more information.

The post The What, Who, and How of Charitable Fundraising Compliance Registration and Reporting Requirements appeared first on Perlman & Perlman.

In this article I focus on recipient charities, i.e., a charity that receives donations facilitated by a platform or platform charity.  Although the law does not directly impose requirements on recipient charities, the new “good standing” requirement does have significant impact on recipient charities’ ability to receive funds through fundraising platforms. 

Recipient Charities 

The majority of 501(c)(3) public charities are likely to qualify as recipient charities.  If an organization receives donations through platforms such as Facebook, Blackbaud, GoFundMe, Benevity, or Classy, it is considered to be a recipient charity. 

The chief impact of the new law on recipient charities is the requirement that platforms and platform charities are only permitted to solicit, permit, or otherwise enable solicitations, or receive, control, or distribute funds from donations for recipient charities that are in good standing in California.  This means that if your organization is not in good standing in California, a platform may stop listing you as a potential beneficiary of funds and cannot send funds to your organization. 

Depending on how a platform has set up its good standing procedure, failure to be in good standing could prevent your organization from receiving online donations through the platform, not only from residents of California, but potentially from donors in any state.

How to Comply

To comply with the good standing requirement, fundraising platforms and platform charities receiving funds through the platform should ensure that with respect to each recipient charity: (1) the organization’s federal tax-exempt status has not been revoked by the Internal Revenue Service (“IRS”); (2) the organization’s tax-exempt status in California has not been revoked by the California Franchise Tax Board; and (3) the organization is not prohibited from soliciting or operating in the State by the California Attorney General.  

Charitable fundraising platforms and platform charities are prohibited from facilitating donations for recipient charities who are on any of the following three lists pursuant to the good standing requirement:

1. California Attorney General’s list of charities that may not operate or solicit in the State
2. California Franchise Tax Board’s Revoked Exempt Organizations List
3. The IRS’s Tax-Exempt Organization Search Tool

What Can Charities Do Now?

Monitor your organization’s good standing status and ensure that you are submitting the required filings to remain in good standing.  We suggest that you check all three databases, even if you believe there is no reason to be out of good standing on any of these lists.  

Check your status in each of the three databases:

1. CA Attorney General Registry Verification
2. CA Franchise Tax Board Entity Status Letter | FTB.ca.gov
3. IRS Tax Exempt Organization Search | Internal Revenue Service (irs.gov)

For more information, see our recent articles on California’s new law governing charitable fundraising platforms:

California Issues Final Regulations Governing Charitable Fundraising Platforms

Has Your Organization been Blocked by Charitable Fundraising Platforms? It is likely due to California’s new “Good Standing” requirement.

California Enacts New Law to Regulate Charitable Fundraising Platforms

The post Why it Matters if Your Nonprofit Organization is in “Good Standing” in California appeared first on Perlman & Perlman.

CALIFORNIA

Due to recent changes in California’s law, charities that are delinquent with the California Attorney General (AG), California Franchise Tax Board (FTB) or the Internal Revenue Service (IRS) are effectively being shut out of charitable fundraising platforms, including, but not limited to, Facebook and Blackbaud.  The law prohibits fundraising platforms from allowing charities that are delinquent with any of these agencies to fundraise or receive donations in California via their platform. This effectively shuts down a significant amount of online fundraising activities not just in California, but in all states, due to platforms’ compliance with the California law.  Moreover, since the agencies may take three to six months or even longer to process and confirm the correction of the delinquencies, this change is seriously impacting many charities’ ability to fundraise for an extended period of time.  

Delinquencies with the AG’s Registry of Charities and Fundraisers typically occur when a charity’s registration has expired and it has not submitted renewal documents, or because a deficiency has been identified upon the state’s review of the renewal registration.  In either instance, the delinquency status is effective immediately. The AG has changed its procedure and is no longer sending notices of deficiency with time to cure. Similarly, missed filings with the FTB will cause a charity to be included on its revocation list, which requires the platforms to shut down online solicitation or receipt of donations for the charity in California. 

It is imperative that all filing requirements in California are timely, complete, and accurately met.  If your organization is a California charitable corporation, or conducting operations in the State, it must submit annual filings with the FTB in addition to the annual filings with the AG’s Registry of Charities and Fundraisers.  All charities which solicit contributions in California, unless exempt, have an annual registration requirement with the AG. 

For more information on the California law, please see Has Your Organization Been Blocked by Charitable Fundraising Platforms? It is likely due to California’s new “Good Standing” requirement.

TENNESSEE

Effective July 1, 2024, charities soliciting in Tennessee must file a copy of any applicable commercial co-venturer agreement, along with a state form, at least five (5) business days before the promotion begins in the state.  Applicable commercial co-venturer agreements include those in which the territory of the promotion includes Tennessee.  

UTAH

Following a recent change to Utah’s Charitable Solicitation Law, effective May 1, 2024, charitable organizations will no longer be required to submit an annual registration with the Utah Division of Consumer Protection.  To this end, we have been notified by the Consumer Protection Division that as of March 29, 2024, it is no longer accepting registrations from charitable organizations.  With the elimination of this charitable registration requirement, Utah has also eliminated the requirement to pre-notify the state about charitable sales promotions taking place in Utah.  

The changes in Utah law also require Utah nonprofit corporations or foreign nonprofit corporations doing business in Utah to file their most recent Form 990 as part of their annual corporate registration filing process, unless the organization is exempt from filing a 990 with the IRS. This change will take effect in January 2025 and the Division will promulgate new Administrative Rules reflecting this change. 

Please see our recently updated charts

Charitable Solicitation Registration and/or Filing Requirements

Charity State Registration, Reporting and Contract Filing Obligations Relating to Commercial Co-venturer (CCV) Promotions

The post Charitable Registration Filing Updates for California, Tennessee, and Utah appeared first on Perlman & Perlman.

State of the Nonprofit Sector 

Tim Delaney, President & CEO, and Donna Murray-Brown, Vice President of Strategy and Development at the National Council of Nonprofits, presented an overview of the charitable community.  Included in their discussion was the current scale and scope of the sector, external threats to its sustainability, and ideas for how state charity regulators and members of the sector can continue to work together to better protect and serve the community.  

External threats include an increased demand for nonprofit services in an environment of increased costs and reduced contributions.  At the same time, nonprofits are faced with the antiquated and broken systems of government contracts and grants while the sector is experiencing a workforce shortage.  This has weakened the delivery of services to the public.  

Charity regulators and nonprofits are encouraged to work together to protect and serve the public by focusing their efforts on preventing bad actors from misuse of the charitable nonprofit system and on stopping scam artists from masquerading as charitable nonprofits. 

Lessons in Nonprofit Governance from the Big and Small Screen

Gene Takagi, principal of Neo Law Group, entertained participants with key points about “good and not-so-good governance” by quoting characters from popular television shows and movies. My favorites included Ted Lasso (“Believe”), Captain America (“How do we do this? As a team!”), Spiderman (“With great power comes great responsibility”) and Dumbledore (“it takes a great deal of bravery to stand up to your enemies, but a great deal more to stand up to your friends”).   Gene used the quotes to walk participants through key issues of the duties of care and loyalty, delegation, trust and reliance, board composition and vacancies, succession planning, prohibition of private benefits, as well as governance and charitable solicitations.  For more detail, read Gene’s Lessons in Nonprofit Governance from the Screen.

Purpose Driven Board Leadership

Dani Robbins, Director of Governance Strategy at Board Source, delved into a new way of framing nonprofit board members’ roles through a discussion about purpose-driven board leadership which prioritizes purpose and mission over the organization’s needs.  In summary, this framework is premised upon four principles. 

Purpose Before Organization 

Prioritizing the organization’s purpose and the problems it addresses versus the organization as an entity by reframing the “duty of loyalty as the center of its own gravity” to how the organization can best steward its resources to serve its purpose.

Respect for Ecosystem 

Acknowledgment that because an organization’s actions have an impact on the ecosystem it requires an obligation to consider the organization’s actions as part of its decision-making processes. 

Equity Mindset 

Commitment to advancing equitable outcomes, avoiding ways in which the organization’s work may reinforce systemic inequities and being willing to break down barriers that may have been created by the organization in the past. This must be applied across a number of areas including allocation of the organization’s resources, programmatic oversight, and creating a diverse and inclusive board. 

Authorized Voice and Power 

Recognition that the organization’s power and voice must be informed and authorized by those who are impacted by the organization’s work, which requires decisions to be made in the context of real understanding of community assets, needs, preferences, and aspirations, listening to community needs and experiences, and sharing power by inviting individuals to the board who have relevant lived experiences.  

Reframing for purpose requires a shift in focus from the board’s traditional position of operating in service to the organization to a primary responsibility for sustaining the organization and its ability to exist in service to its mission and to its service for the public good with a primary responsibility to steward organizational capacity such that it maximizes positive effect to that core purpose. 

The Uses of Different Business Structures by Charities

While the agenda promised a discussion of “some of the latest developments in what can be complex arrangements and structures in the section,” this session focused on just one – the Versatile LLC. Sharon Lincoln, Partner with Casner & Edwards, LLC, shared her insights about the Versatile LLC in the session “What Board Members and State Regulators Need to Know”.  

She explained that a limited liability company (LLC) is the U.S. version of a private limited company, one that provides flexible tax treatment and limited liability for its members.  It offers three options for the tax classification -corporation, partnership, or disregarded entity.  Ms. Casner then focused her discussion on answering the following three questions. 

Can an LLC operate for philanthropic purposes? 

The short answer is yes, but it requires a review and understanding of statutory considerations, the LLC’s certificate of formation and operating agreement, as well as who or what are the members of the LLC and how the activities of the LLC will be funded.

Can an LLC operate as or be a 501(c)(3) organization? 

A single-member LLC may be a subsidiary of a 501(c)(3) organization (see also IRS Notice 2021-56 which permits an LLC to apply on its own for recognition as a 501(c)(3) under certain circumstances). 

When can an LLC be useful to a charity?

This answer depended upon the various forms of corporation, partnership, or disregarded entity.

The discussion concluded with some state-specific considerations, such as what purposes the LLC statute permits and charity bureau oversight in related-party transactions, mergers, asset transfers and dissolution. 

State Update

Unfortunately, noticeably lacking in this year’s conference was a robust discussion about the state regulators’ enforcement efforts.  Only twenty minutes of the five hours allocated were devoted to sharing enforcement updates.  The Annual Report on State Enforcement and Regulation, which highlights enforcement actions in the areas of deceptive solicitations, governance and trusts and estates, as well as summarizes outreach efforts and published guidance, transaction reviews and updates regarding regulations and legislation was provided with the conference materials.  It was not, however, a substitute for the usual color and insight that have been shared with conference attendees in the past, a key incentive for attendance by members of the sector. 

The post Noteworthy Sessions from the 2023 NAAG/NASCO Conference appeared first on Perlman & Perlman.

The same disclosures that must be included in direct mail (and other forms of physical solicitations) also must be included on websites (and other forms of digital solicitations, such as emails, texts and social media). Although it might seem onerous to provide disclosures on a website, it can be used as an opportunity to direct potential donors to the site. For example, information on a social media page can offer the solicitation, embedded on the website, through the means of a link. Once on the website, donors have access to more information about the organization.

For website and other digital solicitations, the organization can use a hyperlink in place of the full disclosure statement. In other words, the organization can simply include the hyperlink, often labeled something to the effect of “State Solicitation Disclosures.” To satisfy the most restrictive of the states’ requirements, the disclosure must be visible on every page that involves a solicitation, so most organizations simply include it in their footer along with their other legal notices, such as Terms of Use and Privacy Policy. If the donate page pops out to a separate page where the footer is no longer visible, the disclosure link will also need to be included on that separate page—it is critical that donors are able to see the statement at the last point before they can complete the donation.

Note that this hyperlink option does not change the requirement for the full disclosure to be included with physical solicitations—it is only an option in digital ones.

Many states have verbatim requirements for specific language to be included in the written disclosure statements.  Soliciting organizations should regularly review all their written solicitation materials, including their websites, to consider whether they comply with the state disclosure requirements. More information about  states that require solicitation disclosures  and sample disclosure statements for nationally-registered organizations are available on our website.

The post Website Solicitation appeared first on Perlman & Perlman.

What is a Professional Fundraiser? 

A professional fundraiser (a/k/a commercial fundraiser for charitable purposes, professional solicitor or paid solicitor) is generally defined as a person or entity who, for compensation, directly solicits contributions on behalf of one or more charitable organizations.  A professional fundraiser may have temporary custody of contributions and is permitted to receive percentage-based compensation.

Examples of professional fundraising activity include telemarketing, in-person meetings with prospective major donors, vehicle donations, thrift store operations, event ticket sales, auctions at charity events (including the acquisition of auction items), and operation of certain internet fundraising platforms.

Where Does a Professional Fundraiser Need to Register?

Generally, a professional fundraiser is required to register in any state where they are directly soliciting charitable contributions on behalf of a charity.  With respect to internet solicitations, a state may impose its registration and reporting statutes only on a PFR’s activities that meet the constitutional requirement of “minimum contacts” with that particular state.

Acknowledging these jurisdictional limitations, and given the practical reality that applying (and enforcing) their registration requirements to every internet solicitation is virtually impossible, the National Association of State Charity Officials (NASCO) issued guidelines in 2001 known as the Charleston Principles (the “Principles”).  The Principles are not binding law; however, NASCO encourages state charity regulators to use them as practical guidelines for applying their state laws to online fundraising activities.

The Principles summarize the application of state registration and reporting regimes to PFRs as follows:

1. Entities domiciled within the state.

An entity is domiciled within a particular state if its principal place of business is in the state. However, according to the Principles, a physical presence within a state, such as a branch or regional office, may also be indicative of appropriate state jurisdiction.

2. Out-of-state entities whose non-internet activities would require registration in the state (e.g., inbound telephone or face to face solicitations in the state).

3. Out-of-state entities that solicit through an interactive or non-interactive website and either (a) specifically target persons physically located in the state or (b) receive contributions from the state on a repeated and ongoing basis, or a substantial basis, through or in response to the website solicitation.

The Principles leave the definition of “repeated and ongoing” or “substantial” to the individual states.  Currently, three states, Colorado, Mississippi and Tennessee have, by regulation, formally adopted numerical thresholds.  In Colorado, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least fifty online contributions, or the lesser of $25,000 or 1% of its total contributions, in online contributions during a fiscal year, respectively.  In Mississippi, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least twenty-five contributions or $25,000 in online contributions in a year.  In Tennessee, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least one hundred contributions or $25,000 in online contributions in a year.

Professional Fundraising Contracts

In addition to the registration requirements, state charitable solicitation statutes require that contracts between a charity and a PFR be filed in the states where solicitation activity is occurring and that they include certain provisions. Common contract provisions required by state statute including the following:

• Legal name/address of the charity
• Statement of the charitable purpose for which the solicitation campaign is being conducted
• A clear statement of the fees to be paid to the professional fundraiser
• The effective/termination dates of the contract
• A statement that the charity exercises control and approval over the content, volume and/or frequency of any solicitation
• An estimate of the amount the charity is expected to receive as a result of the solicitation campaign
• California and New York require lengthy cancellation provisions designed to allow the charity to cancel the contract within 10-15 days of signing without penalty
• Several states require the contract to be signed by two authorized officials of the charity

Campaign Financial Reports

Nearly all states that regulate PFRs require them to file a report that accounts for the funds raised in the campaign.  The reports generally require disclosure of the total amount raised, the fee paid to the PFR, and certain campaign expenses.  These reports are required within a certain time period following the end of the campaign (typically ninety days) or, for ongoing campaigns, annually in connection with the anniversary date of the campaign.

Bonds

As part of the registration process, PFRs are required to obtain a surety bond.  The purpose of the bond is to guarantee against malfeasance in the conduct of charitable solicitations.  The face amount of the bonds required by the states range from $10,000 to $25,000.

Point of Solicitation Disclosures

Virtually all states require a PFR to identify its status as a professional fundraiser, and many require the PFR to disclosure that the PFR is being compensated.  If asked by the potential donor, the professional fundraiser must truthfully disclose how much of the donation will go to the charity.

In addition, a number of states require solicitation disclosure notice statements on all written materials used when soliciting contributions.  The required disclosures must include how additional information about the organization may be obtained as well as certain state regulatory agencies’ contact information where donors can obtain further information. Solicitation disclosure notice requirements apply to charitable organizations as well as professional fundraisers.

The solicitation disclosure notice is required to be included on every printed solicitation or written confirmation, receipt, and reminder of a contribution. Customary examples of printed solicitations are direct mail solicitations, fliers, or solicitations contained in a newsletter.  Often overlooked, however, are emails or the organization’s website, which, if it includes a donate button or other request for a donation (including a link to the donate button), is considered a form of written solicitation.

The services that professional fundraisers provide can be of great value to nonprofit organizations. Understanding the regulatory framework governing professional fundraisers will help avoid missteps that can lead to actions by state regulators, including fines and penalties. It is incumbent on both the professional fundraiser and its charity clients to take the steps that ensure compliance under state charitable solicitation laws.  If in doubt, it is always a good idea to seek legal counsel.

The post Are You Paid to Solicit Charitable Contributions for a Charity? You May Need to Register as a Professional Fundraiser appeared first on Perlman & Perlman.

Types of Campaigns

The core of a matching gift campaign is that a “match donor” offers to make a donation in connection with donations made by the public.  Generally speaking, there are three basic types of matching gift campaigns.

1. Matching Gift. The traditional matching gift campaign is where a “match donor” pledges to match public donations, dollar for dollar, often up to a specified donation cap and/or for a specified time period.  With this type of campaign, the amount of the pledge that must be paid by the “match donor” is contingent upon the total donations received from the public in response to the campaign.
2. Challenge Grant. A challenge “match donor” grant is one that is paid only if and when a charity raises a specified total dollar amount of funds, or receives funds from a specified number of individual donors.  With this type of campaign, the fulfillment of the pledge by the “match donor” is contingent upon hitting the target donation goals from the public – this structure is not a dollar-for-dollar match, but all-or-nothing.
3. Fixed Lead Contribution. A fixed lead contribution is one where a contribution that has already been made by a “match donor” is promoted with the goal of encouraging others to join in giving towards a larger specified financial goal.  This type of campaign is often used to fund a capital campaign (e.g., the construction/ expansion of a building), or to build or significantly grow an endowment.  The fulfillment of the lead contribution is not contingent upon public donations.

Key Legal Considerations

The following are key legal issues to consider when conducting matching gift campaigns.

1. Communicate clearly about the way in which the matching gift campaign works. All material information about how the campaign works must be clearly and conspicuously disclosed in solicitations seeking matching donations.  All materials terms regarding the requirements that must be met to trigger a donation match should be clear to prospective donors at the point of solicitation.  Consider the following analogous guidance from the NY Attorney General’s office on placement of materials terms for cause marketing campaigns: “Consumers should be able to easily understand before purchasing a product or using a service how doing so will benefit a charity. . . . [The] key details should be displayed together in a clear and prominent format and size, and in close proximity to, the text used in marketing the promotion.”  Below are a few questions that will help you consider what are the material terms that should be disclosed as part of your matching gift campaign solicitations:

a. Is the donation from the “match donor” a pledge that is contingent upon receiving donations from the public, or has the donation already been received?

b. Is there a match donation cap (i.e., a maximum amount that the “match donor”) will donate?

i. Recommendations provided by the NY Attorney General’s office in connection with cause marketing advertisements may provide useful guidance in how to structure matching donation campaigns to provide transparency to donors: “If there is a donation cap, “do not saturate the market with products; limit the number of units distributed to a quantity that is reasonably expected to produce the maximum donation.”

ii. The analogous principle in a matching gift campaign would be to forecast in good faith when you expect the organization will receive donations sufficient to hit the match donation cap, and plan the campaign so that the length of the campaign and match amount (e.g., dollar for dollar) vis-à-vis the number of recipients of the appeal are such that the organization will not expect to hit the match donation cap too early in the campaign, thereby negating many or most donors’ ability to have their donations matched per the campaign terms.

iii. Ideally, consider past history from similar types of fundraising campaigns (e.g., direct mail, email, social media) to forecast when you expect you would receive donations sufficient to hit the match donation cap, and plan so that the length of the campaign and match amount (e.g., dollar for dollar) are such that the donation cap will not be met too early in the campaign, thereby negating other donors’ ability to have their donations matched per the campaign terms.

c. What is the donation match period? Must donations be received by the specified date, or merely pledged or postmarked by the specified date?

d. What is the match ratio? 1:1? 2:1?

e. To trigger the match, do the donations need to be made through a specific website, or be specifically in response to a special direct mail appeal?

2. Obtain prior consent from the donor with respect to their commitment and the organization’s plans to use it in a public solicitation. Consent should be obtained for any situations that will involve communicating with the public about a donor’s potential or previous donation. This commitment should be obtained in writing prior to receiving any funds associated with the challenge.
3. Stop promoting the matching gift incentive once the match donation cap has been reached. Consider establishing a mechanism to track in real-time the status of donations received in response to the campaign.

a. If campaign donations are made through a unique website URL, consider posting a notice on the webpage once the matching donation cap has been reached stating that the match has been fulfilled, but donations will still be gratefully accepted.

b. If the campaign is promoted on social media, consider switching posts from promoting the match opportunity to communicating that the match has been fully met.

c. If the campaign is being conducted by email or direct mail, consider including a website URL or telephone number where donors can obtain campaign status updates.

4. Properly manage restricted gift solicitations. If the matching gift campaign is being used to raise funds for a specific project or purpose, make sure that the donation goal reflects a reasonable estimate of the amount needed to fund that project or purpose. Ensure that funds received are properly booked as restricted funds, and used only for that purpose.

The post Donor Match-Making – Legal Considerations for Matching Gift Campaigns appeared first on Perlman & Perlman.