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.

While most nonprofits are required to register in many states to conduct charitable fundraising, religious organizations are generally exempt from the registration requirement. It’s important to be aware, however, that the scope of the states’ religious exemption varies. Therefore, religious organizations should carefully review each state’s statutory exemption to determine where they are exempt, and where they are not exempt and therefore may need to register to solicit contributions.

Overview of Charitable Solicitation Registration & Religious Exemptions

Charitable fundraising activities are primarily regulated at the state level, through the offices of the Attorney General, Departments of State, Consumer Protection and the like. Charitable solicitation regulations were established to protect the public from fraudulent fundraising and assist prospective donors in making well-informed giving decisions. Each state’s statutory framework typically requires charities to register with the state, disclose information about their finances and fundraisers, and provide certain oral or written disclosures to their prospective donors. Currently, forty-one (41) states and the District of Columbia require most organizations to register before soliciting charitable contributions in their respective jurisdictions.

Most states exempt or exclude religious organizations from their charitable solicitation registration and reporting requirements. Keep in mind, however, that each state defines the scope of its exemption for religious organizations differently. As a result, some religious organizations may be required to comply with a state’s registration requirements while others may not. Several states require that religious organizations make a written request to confirm that they are exempt from the state’s registration requirements, while others consider it a legal determination to be made by the organization, and explicitly advise that they do not provide legal advice or make a formal determination as to whether or not an organization is exempt.

For some states, the religious exemption provisions are broadly constructed, and exempt any “duly organized religious corporation, religious institution or religious society.” Other exemption provisions are more narrowly drafted, exempting only those religious organizations that are not required to file the Form 990 with the IRS, which primarily includes churches¹, their integrated auxiliaries², and ecclesiastical or denominational organizations. Churches and other non-990 filers are exempt from registering in all states unless they use the services of a professional fundraiser.

As a general matter, religious organizations that are required to file the Form 990 with the IRS will be exempt in some, but not all, states. Many religious organizations that are required to file Form 990 describe their mission as both religious and charitable as together these constitute an expression of their religious faith and values. Direct services for human needs may include the provision of food, shelter, education, and medical support to vulnerable populations. Oftentimes, they incorporate prayer and religious instruction in their programmatic work, and will require their employees to agree to an organizational statement of faith.

It is worth noting that the laws of a few states continue to include a provision in their religious exemption law which the Supreme Court has declared unconstitutional. These unenforceable provisions limit the scope of the religious exemption to only those religious organizations that are primarily supported by contributions from their members or congregation.³

Impact of Religious Exemptions on Fundraising Professionals

Even when a religious organization is exempt from registering in a state to solicit contributions, in most states, when a fundraising professional provides their services to the organization, the fundraiser must be registered with the state. In a few states, the religious organization’s exemption also extends to the fundraiser’s contract filing and reporting obligations, thereby relieving them of any such filing requirements.

Professional fundraisers (also known as commercial fundraisers or paid solicitors) that directly solicit funds on behalf of charitable organizations are required to register in up to forty-four (44) states. In addition, they must post surety bonds in each state, file copies of their fundraising contracts, and file annual financial reports relating to each fundraising campaign conducted in the state. There are ten (10) states that extend the religious organization’s exemption to their professional fundraiser’s contract filing and reporting obligations.

Fundraising counsels (also known as fundraising consultants) that help plan, manage, advise, or produce and design solicitation campaigns, but do not directly solicit or have custody or control of contributions, are also required to register in twenty-seven (27) states, file contracts, and in a few states, post bonds. There are seven (7) states that extend the religious organization’s exemption to their fundraising counsel’s contract filing and reporting obligations.

Fundraising professionals need to understand the scope of a religious organization’s registration or exemption status in those states in which they will be providing fundraising services to the organization. Not only must they comply with their corresponding filing obligations, but they must also ensure compliance with collateral obligations, such as solicitation disclosures. Thus, it would be prudent for religious organizations to ensure that they have appropriately assessed their exemptions, have documentation to support the exemption in each applicable state, be registered to solicit where required, and communicate with their fundraising professionals to ensure alignment on the impact of their status as a religious organization on both parties’ filing obligations.

Does a religious organization need to register if it solicits on the internet?

In addition to ascertaining whether a religious organization is exempt from registration based on its religious status, a separate analysis should be undertaken to determine if the organization’s solicitation activity creates a jurisdictional nexus that would trigger a state’s registration requirement. For example, a website with a donate button that is accessible to residents in all states does not necessarily create a sufficient jurisdictional nexus. In many cases, it makes sense to undertake a jurisdictional analysis based on the organization’s targeted and/or online fundraising activities before delving into the religious exemption analysis as there may only be a few states where the organization has a jurisdictional nexus based on its fundraising activities. In such cases, the organization may simply review the applicability of the religious exemption in those relevant states.

For more information on how to assess an organization’s registration requirements based on its online fundraising activities, please read this article.

What are the practical steps for religious organizations to determine their registration requirements?

Assess whether registration is necessary or not based on a jurisdictional analysis, taking into account both traditional forms of fundraising (e.g., direct mail, telemarketing, events) and online fundraising activities.
Review with your legal counsel whether your organization qualifies for the religious exemption in the relevant states.
Apply for religious exemptions where applicable and appropriate.
Follow the exemption application procedures in the states that have such procedures in place.
For states that take a “self-determination” approach, and will not formally confirm an organization’s qualification for the state’s religious exemption, it may nevertheless be prudent to submit a letter, putting the states on notice of the organization’s position that it is statutorily exempt from registering as a religious organization.
Register in all applicable states where: (1) a registration requirement exists; (2) the organization is soliciting (and the state has jurisdiction over their solicitation activity); and (3) the organization does not qualify for the religious exemption. Note that charitable solicitation registration must be renewed annually in each applicable state.

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