If your organization asks for donations, guess what? Most states would say you’re engaging in fundraising activities and, if they think you’re engaging in fundraising, they’ll subject you to regulation.
An overwhelming number of states regulate fundraising activities through something called a Charitable Solicitation License (CSL). Although it means more forms and another license, it’s designed to provide donors with transparency and to protect the public from misrepresentation and fraud. Each state has its own rules surrounding this topic; you should, therefore, check your state for details and possibly seek legal advice as some state laws can be confusing. There are, however, a few commonalities.
Are You Fundraising?
Maybe you don’t think you are but don’t be surprised if your state disagrees with you, as most of them define it very broadly.
States generally include oral, written, or online requests for contributions in their definition. If, for example, you’re at an event and ask people you meet to donate to your organization, you’re fundraising. If you write a letter or a blog which educates the public on the mission of your organization and ask for donations at the end, you’re fundraising. If you have a “donate now” button on your website, you’re fundraising.
If you think about it, all of this can lead to a few issues:
- An organization does not have to be physically present in a state to engage in activities that could require a CSL.
- You’re probably fundraising a lot more than you think you are, which means you probably need to obtain a CSL.
Wait, Wait Wait…My Organization’s Contributions Come from Online Platforms. Do I have to Obtain a CSL in Every State?
It’s not really clear. Most states do not address Internet fundraising specifically in their statutes or regulations. Many require registration, however, if:
- The charity specifically targets a person in a particular state; or
- The charity engages in passive solicitation and has “ongoing” or “repeated” contacts with state residents.
For example, if you use a “donate now” button on your website and you receive a substantial number of donations from a particular state, you may have to register in that state. Since internet fundraising is relatively new, it is best to check with each state in which you may solicit or receive contributions about their CSL regulations. At times, something as simple as a follow-up email or letter to a state resident following an online donation can be considered an active solicitation, which would trigger CSL regulations.
What is clear is that you’ll have to register in your state of incorporation, as well as any state in which you have a physical presence and whose residents you will target.
Okay, You’ve Convinced Me. Now When Do I Need to Register?
Right away. If you’re going to ask for contributions or sell goods or services to benefit your cause, you must register. Remember, it’s the ask that prompts the registration requirement, not whether that ask resulted in funding.
Certain organizations may be exempt from registration and that varies by state. Please refer to the charitable solicitation regulations for your state to determine if you are exempt.
How Do I Register?
You must complete a registration statement that can usually be found online on each state’s website. Many require supporting documentation, and a filing fee.
Registration statements will usually request basic information about the organization, its registered agent, governance, and finances. Some states require a list of officers and directors, professional fundraisers (if they are being used), and states in which the organization solicits or plans to solicit.
Because the information provided on the registration statement will usually be available to the public, personal information such as home addresses, bank account information and tax identification numbers should be omitted.
Supporting documentation required may include the IRS Determination Letter, a copy of the Articles of Incorporation and Bylaws, and an IRS Form 990, if filed.
Registration statements must be signed by the organization’s leadership.
What If I’m late?
File now! The alternative could result in investigation, questions from the IRS, and scrutiny from potential donors!
Great! So, I Filed. Am I Finished?
No. Most state agencies require annual reports and they’re usually tied to the fiscal year end of the organization or the anniversary of the organization’s registration. Each state’s renewal process is unique, but you can bet there will be a fee involved, as well as a request for the most recently filed 990 and an audited or reviewed financial statement if applicable.
Setting Up a Nonprofit Requires a Lot of Paperwork!
Yes, it does, and that’s designed to help protect donors, grantors, and other funding agencies.
If you would like help with your nonprofit’s accounting and finance function to ensure that you are on the right track, we are here for you! Schedule a complimentary consultation with us so we can learn more about your organization and the challenges you are facing.