G&G Law Alert - Soliciting Contributions Legally - HTML

G and G Law Alert Nonprofit
Alerting Leaders to Key Legal Developments October 29, 2010


Soliciting Contributions Legally:

What Your Organization Needs to Know Before It Raises Funds



In July 2010, the Tennessee Department of State assessed $50,000 in civil penalties on the Veterans Support Organization (VSO) for violating a number of the state's charitable solicitation statutes, including failure to register with the state's Division of Charitable Solicitations and Gaming. Like Tennessee, many other states regulate charitable solicitations in an attempt to protect their residents from solicitation fraud. Forty-five states and the District of Columbia now have some form of charitable solicitation regulation, with 39 of those (plus the District of Columbia) requiring registration by soliciting charities. In addition, many municipalities have adopted their own fund raising regulations. Nonprofits must be aware of the requirements in states and localities where they solicit funds, lest they find themselves inadvertently in violation of the law and facing penalties.

The reach of charitable solicitation registration requirements is broad, generally triggered whenever a "charitable organization" makes a "solicitation." Most states define a charitable organization as any entity that is or holds itself out to be established for any charitable purpose or employs a charitable appeal as the basis of any solicitation. Solicitations come in many different forms and may be oral, written, mailed, televised, announced, published, or posted on the internet.

Charitable solicitation regulations vary from state to state, but typically cover several or all of the following issues:

• Registration, annual reporting, and record keeping requirements of Charitable Organizations, Professional Solicitors, and Fund Raising Counsel engaged in charitable solicitations.

• Exemptions from registration and reporting requirements. For instance, churches and some other religious entities are exempt from most states' registration requirements.

• Requirements for contractual relationships between Charitable Organizations and Professional Solicitors or Fund Raising Counsel.

• Requirements that Charitable Organizations or Professional Solicitors disclose certain information when soliciting. For example, several states require that all solicitations disclose that the Charitable Organization's financial statement will be provided on request.

• Prohibitions against certain acts when soliciting (e.g. misrepresentation of how solicited funds will be used, or implying endorsement by an individual without that individual's written consent).

The nuances of various state regulations, together with an organization's purposes and fundraising methods, will affect registration obligations. Thus, the best practice for any nonprofit making appeals for donations is to research proactively the regulatory requirements in the states where it solicits (a good starting point is www.multistatefiling.org) and seek legal counsel if questions about registration requirements in any particular state arise.

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© 2010 Gammon & Grange, P.C. For more information, contact Gammon & Grange, P.C. (GGAlert@gg-law.com; 703-873-7349), a law firm serving nonprofit organizations and businesses throughout the United States and abroad. Readers may freely copy and distribute this Alert in full without modification.

Disclaimer: This memo is provided for general information purposes only and is not a substitute for legal advice. The transmission of this memo does not create an attorney/client relationship. No recipients of this memo should act or refrain from acting on the basis of this memo without seeking professional legal counsel. Gammon & Grange, P.C. expressly disclaims all liability relating to actions taken or not taken based on the content of this memo.