This article was also published on the Association of Corporate Counsel's website on November 5, 2014.
In their search for the next big donor, many well-intentioned nonprofit fundraisers believe that "the wider the net, the greater the catch." Yet expansive outreach can quickly become expensive outreach. Without a thorough understanding of charitable solicitation laws and registration requirements, comprehensive fundraising activities can expose nonprofit organizations to significant regulatory, financial, and legal risk. Snail mail, phone, and email campaigns – directed at individuals, corporations, and even foundations – can, depending on the state and the specifics, trigger state charitable solicitation registration requirements, with nationwide registration requirements following close behind.
And don't forget about website-based solicitation, social media campaigns, crowdsourcing, and mobile fundraising, among other possible triggers. While the legal nuances of these more modern and sophisticated charitable fundraising mechanisms are beyond the scope of this article, nonprofits need to be aware that, in some cases, any of them can lead to nationwide registration obligations.
Approximately 40 states require charitable solicitation registration, and navigating the maze of laws and registration/renewal regulations can be laborious. While many nonprofits outsource registration management to law firms or specialized companies, others elect to complete registrations on their own. For nonprofits seeking to do this work in-house, we provide some pointers below to help guide counsel through the nuances and pitfalls of charitable solicitation registration.
1. States Define "Solicitation" Broadly
State laws commonly define charitable solicitation along the lines of "a direct or indirect request for a contribution on the pleas that the contribution will be used for charitable purposes." Solicitation can include making an oral or written request; announcing a bazaar or performance for which a contribution is requested; soliciting grants from foundations; or stating that a portion of a sale of goods will benefit a charitable purpose. Many states also expressly stipulate that a request for a contribution is a solicitation, whether or not a contribution is actually received. Because of the broad generality with which "solicitation" is defined, nonprofits considering any form of fundraising within a state must also consider charitable solicitation registration responsibilities in that state.
2. The Unified Registration Statement Is Far from Uniform
In practical terms, an organization using an online medium for solicitation will likely trigger registration requirements in all 40 states. In an effort to standardize registrations across multiple states (and reduce the administrative burden to nonprofits), the National Association of State Charity Officials (NASCO) and the National Association of Attorneys General (NAAG) developed the Unified Registration Statement (URS). Although the URS is accepted by approximately 32 states, most require additional state-specific forms. Even if requiring "only" the URS, each state also mandates the inclusion of different attachments, such as organization's IRS Form 990, audited financial statements, articles of incorporation, and/or bylaws (the list varies according to each state). For nonprofit organizations, national solicitation registration is, in essence, the completion and filing of 40 different state applications, and the current administrative burden of nationwide registration remains high. In-house nonprofit staff will find the state-by-state assembly instructions on the Multistate Filer Project website helpful when preparing registration and renewal submissions.
3. Registration Involves More Than Just the Development Department
Many states require that charitable solicitation registration forms be reviewed and signed by organization leadership, usually the chief executive officer or chief financial officer. Some states require the signatures of both officers, and Minnesota requires an organization's entire board pass a resolution approving the financial information reported on the state registration form. A prudent organization will alert leadership – early in the registration process – of their needed involvement, allowing ample time for review and signature.
4. Information Is Often Public
Under most state statutes, charitable registration forms are public information. Several states, such as Colorado and Hawaii, have online databases from which anyone can download a copy of an organization's initial registration form and subsequent renewals. Because of the potential public nature of registrations, a nonprofit should not include any personal information (such as Social Security numbers, bank account information, or home addresses of officers and directors) unless a regulator has confirmed such information will be withheld from disclosure. Particularly troubling is California's recent requirement that Schedule B of Form 990 – the non-public Schedule of Contributors – be filed as part of the annual renewal application. Before final submission, organizations should review all documents and label items as "confidential" where permitted.
5. More States Are Going Online
Several states – including Colorado, Hawaii, New Mexico, and Ohio – require online completion of charitable solicitation registrations. While online registration reduces the time and expense of submissions, the nature of online forms prevents customized explanations to some "yes/no" questions. Organizations must also factor in additional time to become familiar with the online registration processes of each state, with mastery of at least four online registration systems needed on average.
6. A Registered Agent May Be Required
Approximately 12 states require that a registered agent be appointed in connection with an organization's charitable solicitation registration. In some cases, a nonprofit must submit a separate Foreign Corporation Authorization Form or similar document to the Department of Corporations or Secretary of State prior to filing an initial charitable registration. Generally, the registered agent must have a street address in the state of filing; for most organizations, using a corporate registered agent often makes the most sense. These additional filings and appointments can increase registration time and costs, and should be factored into the process. Foreign corporation authorizations also will have to be maintained through renewals on an annual or biennial basis.
7. Confirmations Come in Many Forms
Once all registration forms are submitted, it may seem all an organization has to do is sit back and wait for confirmations from each state. Not all confirmations come by mail, however, and not all states proactively confirm registration. For example, Kentucky and several other states update online state charity databases with registration and renewal dates after an organization's application has been processed. Organizations should record the submission date of each registration and actively follow up with each state until all confirmations are received.
8. Many States Require Submission of IRS Form 990 (and Assume It Will Be Filed in May)
Many states require that an organization's most recently filed Form 990 be included with an initial charitable solicitation registration, as well as with annual renewals. The IRS due date for Form 990 is based on an organization's fiscal year, and the majority of organizations follow a calendar fiscal year file by May 15. However, many states mistakenly assume that all nonprofits must file Form 990 by May 15. These states then expect to receive an organization's Form 990 shortly thereafter as part of charitable solicitation registration and renewals. For organizations following a fiscal year other than a calendar year, or for those that receive an extension from the IRS, this misconception can require additional follow up or explanation. Some states, such as North Carolina, may require that draft financial information be filed, or may delay registration until Form 990 is received for the most recently completed calendar year.
9. Nonprofits May Have Additional Responsibilities When Working with Third Parties
Organizations often involve multiple entities in their fundraising efforts. Before working with third parties such as professional fundraisers or commercial co-ventures, nonprofits must be registered to conduct charitable solicitation in the states in which fundraising will take place. In many cases, nonprofits must make an additional filing (such as a fundraising notice or filing of a contract) when working with a third party. Nonprofits should confirm that the entities with which they contract are properly registered as professional fundraisers, fundraising consultants, or commercial co-ventures.
10. Late Registration Is Better Than No Registration
According to state statutes, registration for charitable solicitation must take place prior to any solicitation. We find, however, that nonprofits often begin fundraising efforts early in an organization's lifecycle (before personnel are aware of registration requirements). In these cases, organizations should register as soon as possible, even if fundraising activities are already underway. Most states will process a "good-faith" late registration if a nonprofit can legitimately explain its prior ignorance of registration requirements. States are less cooperative if an organization willfully solicits without registering once aware of registration responsibilities.
While nationwide registration may seem daunting, following the tips above can help nonprofits significantly improve the efficiency and efficacy of their charitable solicitation registration and renewal processes – and help minimize legal and regulatory risk.