Donations are the lifeblood of most charities and therefore maintaining the right to fundraise in various states is of critical importance. While many charities know they must maintain their own state registrations to protect their ability to fundraise, they aren’t always as vigilant when it comes to working with professional fundraisers.
Professional fundraisers are regulated in many states where they are also known as professional solicitors, professional fund-raising counsel, and commercial co-venturers. Once a fundraising contract is executed, both parties have an obligation to disclose the relationship in the states where fundraising will occur based on services being provided. If both parties are registered and the contract has all the required information, the contract should be accepted and charitable solicitations may commence upon acceptance.
However, from time to time, a charity may receive a notice that the professional fundraiser is not properly registered or current with its registration or vice versa. The notice will state that fundraising in the state must cease until the unregistered party obtains or renews its license. The unregistered party will receive a separate notice notifying them of the need to register or submit a renewal application.
If the fundraiser does not register and the charity, knowingly, continues to use its services to solicit in the state they received a notice, both the charity and the fundraiser can be subject to fines and consent agreements which they would be required to disclose in other states. Depending on the severity of the violation, a state can impose more severe penalties. For example, a charity can have its registration exemption revoked (if it is on record as an exempt organization from registration), fined, or be required to return funds received during the period of non-compliance.
We recommend both the charity and the professional fundraiser include language in their contract requiring each party to comply with state law in the applicable states and to make the failure to keep each other updated on changes to the status of their registration a basis for termination of the agreement.
It is important to remain in communication throughout the contract term with regard to the status of registrations – especially when preparing for a campaign. Coordination to ensure both parties are properly registered can prevent loss of revenue, for example, in printing for a direct mail campaign and/or avoid financial penalties if caught unregistered.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations. Ellis is licensed to practice in Washington and Arizona and advises nonprofits on federal tax and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.