What is “state registration”?

“State registration” is the term of art used to refer to the entire process of obtaining licenses and permits from the various state agencies regulating the solicitation of charitable contributions.  If an organization solicits charitable contributions – in other words, if a charity asks people for contributions – it must file certain paperwork with the state and get a license or permit to ask people in that state for contributions.  Once the organization is registered, it must also make annual financial reports to the state  to keep its permit.

Some states also require that the organization register as a “foreign corporation” that is “doing business” in the state, even if that “business” is merely asking for donations.   Registration as a foreign corporation, and the annual corporate reports that it requires, is essentially a precondition for getting a charitable solicitations permit in these states.

How do I know if my organization has to register? Or, where does my organization have to register?

The states that regulate charitable solicitations usually have a broadly defined statute or ordinance that requires compliance from every entity that solicits charitable contributions.  But most statutes also contain a list of exemptions to the registration requirement. Each list of exemptions is different and the exemptions are based on many different factors.

Just about every state will exempt organizations whose gross revenues fall below a certain minimum threshold.  However, that threshold varies from state to state.  In fact, some states impose different thresholds depending on whether the organization has hired anyone to help it solicit contributions.

Some states offer exemptions based on the organization’s charitable mission. For example, some states will exempt local groups that support police officers and firefighters.  Most (but not all) states will exempt bona fide educational institutions like universities.  Nearly every state will exempt governmental units and political campaigns.

Many states will not require registration if the organization only solicits its own members and if all solicitation is done on the organization’s own premises. This is why most churches and other places of worship are not required to register.  However, this does not necessarily mean that there is a broad exemption for religious-oriented charities in those states.

The only way to know if your organization is exempt in a state is to go through each statute and see how it applies to your organization.  Even then, some states will require the organization to apply for and receive a formal recognition of exemption from the statute regulating charitable solicitations.

Who must register with the states aside from nonprofits?

In addition to charities, many others who are involved in the solicitation process must register.
If a person or a company is paid to solicit charitable contributions on behalf of a charity, that person or company is considered a “professional solicitor” (the terminology varies from state to state – for example, some states call them “professional fundraisers”).  Professional solicitors must register also.  As part of their registration, professional solicitors must disclose: all of their clients, all of their fundraising contracts, the financial information regarding each of their campaigns, and many other aspects of their activities.  In addition, many states require that professional solicitors’ contracts contain certain provisions and that certain disclosures are made when a professional solicitor solicits.  Many states require professional solicitors to post a bond as well.  In general, professional solicitors face the most stringent state regulations.

If a person or company merely advises or consults with a charity on the charity’s solicitation programs, he or it is considered a “fundraising counsel” (again, there are variations in terminology from state to state – some states call them “professional fundraising consultants” and some call them “fundraising consultants”). Generally speaking, the difference between a fundraising counsel and a professional solicitor is that a fundraising counsel is paid by a fixed rate (not a percentage of the contributions), a fundraising counsel itself does not solicit (the charity itself solicits while the fundraising counsel merely advises and assists the charity in that effort), and a fundraising counsel never has custody, control, or possession of the proceeds of solicitation (instead they go directly the charity, while they often pass through the hands of a professional fundraiser).  Like professional solicitors, fundraising counsel must register with many states and their registration includes filing contracts, disclosing client lists, etc. The states also mandate that certain language appear in contracts between fundraising counsel and charities.  Some states regulate fundraising counsel as professional fundraisers and in those states the fundraising counsels must file bonds and meet all the other requirements imposed upon professional solicitors.

If a company, which is not primarily engaged in the business of fundraising, agrees to donate a certain percentage or dollar amount to a charity for each unit sold (for example, if the company promises to donate $1 to charity X for each bottle of shampoo sold) the company is regulated as a “commercial co-venturer.”  A few states require commercial co-venturers to register and secure a permit, even though the commercial co-venturer is not being paid by the charity to help it raise money.  Many more states mandate that certain language appear in contracts between commercial co-venturers and charities and mandate that certain disclosures be made to the public.

Finally, a few states regulate the people (not corporations) that are paid by professional solicitors to do the person-to-person solicitations on behalf of charities. These people are regulated as “professional solicitors” (in these states, the entities that are normally called “professional solicitors” are called “professional fundraisers”) and often solicit door-to-door or over the telephone.  These individuals must also be registered in a few states and are subject to other requirements.

When a charity registers with a state, it must disclose whether it has engaged any professional solicitors, fundraising counsel, or commercial co-venturers.  Often, when a state receives the registration papers, it will check to make sure that these professional solicitors, fundraising counsel, and commercial co-venturers are also registered with the state. If not, they may receive a letter demanding registration.  It works the other way around as well. When, for example, a professional solicitor registers with a state, the state will check to make sure that all  of its charity-clients are registered as well.

What sort of information must my nonprofit organization file with regulators in order to be registered?

It varies from state to state. Every state will request the basics such as the organization’s name, address, board of directors, date of incorporation, charitable mission, the names under which it will solicit, etc. Every state will also require a copy of the organization’s letter from the IRS recognizing it as a tax-exempt entity. Other documents that states require include a certified copy of the organization’s Articles of Incorporation, copies of the organization’s bylaws, its most recent IRS Form 990, and its most recent financial statement.

Do I have to register if I only raise money through the Internet?

Probably.  Statutes regulating charitable solicitations are very broad in defining the means of solicitation they regulate.  One common construction is: “solicitation … by any means.”   And, although most charitable solicitation statutes were enacted prior to the advent of the Internet, these statutes are sufficiently broad to encompass solicitation over the Internet.

Many states have endorsed a document entitled the “Charleston Principles” which provides a limited exemption from the registration requirement for Internet solicitations.  The Charleston Principles provide for an exception only if a charity does not deliberately seek out contributions from a particular state (for example if it has a website that includes a “click here to donate” button but it is not directed at a particular state and does not send emails soliciting contributions to residents of that state) and it only receives infrequent contributions and an insubstantial amount of contributions from that state (the attorney general of the state  gets to decide what “infrequent” and “insubstantial” means).  However, the   Charleston Principles are not laws and a state could easily decide not follow them at all.

Can my organization handle state registration “in house?”

Theoretically, yes.  But as a practical matter, this is problematic. Many small organizations have a tendency to delegate this task to a volunteer or intern. This is often dangerous because infrequent or casual attention to state registration often leads to missed deadlines and therefore expired permits. Large organizations face a similar problem. They often delegate this task to their corporate counsel or to their Chief Financial Officer.  But, invariably, these individuals are far too busy with more pressing issues and state compliance tends to fall by the wayside.

If the organization misses a deadline and continues to solicit without a permit, it is liable to prosecution for violating a state’s charitable solicitation act. Any such violations must be reported to every other state in which the organization is registered, thus damaging the nonprofit’s reputation.

When does my organization have to register?

It varies from state to state, but there are enough states that require registration documents to be filed at least fifteen days before solicitation activities begin that it is wise to register everywhere prior to  engaging in any solicitation activity.

We have employed someone else to raise money for us, do we still have to register?

Yes, the nonprofit organization must itself register unless it is exempt, regardless of whether it has engaged a fundraising professional.  Most states require the  fundraising professional to register as well.

We have found a company that is willing to donate a certain amount of money to us for every item it sells, do we still have to register?

Yes. This is called a “charitable sales promotion” and the corporate partner is referred to asa “commercial co-venturer.”  Most states require that a nonprofit organization involved in a charitable sales promotion must register. Some states also require the commercial co-venturer itself to register, even though the commercial co-venturer is not regularly engaged in the business of raising money for nonprofits and even though the commercial co-venturer is not being paid to participate in the charitable sales promotion.  Many states regulate other aspects of charitable sales promotions as well by mandating that certain clauses appear in contracts for charitable sales promotions and requiring that certain disclosures be made to the public.

My organization is very busy helping people, so we really don’t have the spare staff time to prepare all this paperwork and keep track of these deadlines. Is there any way around this?

Yes. Charles H. Nave, P.C.’s State Registration Center helps charities and fundraising professionals comply with charitable solicitation laws.  Our goal is to take the administrative hassle of the state registration process out of your hands so you can focus on your mission. For more information, visit our State Registration Services page.

Aside from the registration and annual reporting process, do the states impose any other requirements on my organization’s solicitation activity?

Yes. States require that certain clauses appear in a nonprofit’s contracts with its fundraising professionals. States require that nonprofits make certain specific disclosures to the public when conducting solicitation activities. Many states require that nonprofits adopt and follow complicated conflict of interest policies regarding transactions between the organization and Board members, officers, employees, and their relatives. At least one state is attempting to compel charities to adopt specific procedures to review compensation for CEOs and CFOs and to institute formal audit committees with particular rules regarding who may serve on them and what duties those committees must perform.

What types of solicitations are regulated?

“Solicitation” is usually defined very broadly to include just about every solicitation imaginable.  One popular definition used in many statutes provides that “solicitation” or “solicit” means “the request directly or indirectly for money, credit, property, financial assistance, or other thing of any kind or value on the plea or representation that such money, credit, property, financial assistance, or other thing of any kind or value, or any portion thereof, will be used for a charitable purpose or benefit a charitable organization.”

Does my organization have to register even if contributions to my organization are not tax-deductible?

Yes, unless the organization fits into one of the exemptions provided by a particular state’s statute.

Why does my organization have to register?

The most succinct answer to this is “because it is the law.”  Each state justifies its registration requirement in its own way, but they typically argue that the registration helps protect the public from fraud in charitable solicitations and provides the public with more information regarding the entities that are soliciting charitable contributions in their jurisdictions.

What does my organization do once it is registered?

Once your organization is properly registered, it may solicit in the manner disclosed in the registration documents.  However, the various state charitable solicitation acts require other forms of compliance in addition to registration: certain clauses must appear in contracts with fundraising professionals, certain disclosures must be made to the public during the course of solicitations, certain policies must be adopted by the organization, etc.

Moreover, compliance with state charitable solicitation acts is a continuing process.  Every state will, at a minimum, require an annual report to be filed each year.  The deadlines and content of these annual reports varies from state to state, but generally speaking the states will want to know how much money was raised, how much was spent on the organization’s charitable mission, how much was spent on “management and general,” and how much was spent on fundraising.

What is the Unified Registration Statement and how does it help my nonprofit organization?

The Unified Registration Statement (“URS”) is the result of a cooperative effort between the various state regulators and certain other interested parties to standardize the state registration process.  The URS is now accepted by thirty states and the District of Columbia for initial registrations. However, six states and the District of Columbia require extra forms in addition to the URS and five states do not accept the URS at all. No localities that assertively enforce their charitable solicitations ordinances accept the URS. Moreover, not all of the states that accept the URS for initial registrations will accept it for renewals of registrations. Ultimately, the URS can be helpful to an organization that is just getting started in the registration process, but it is less useful for the ongoing renewal process that nonprofit organizations face in every subsequent year.

What happens if my organization does not register?

If a nonprofit organization solicits charitable contributions without a license in a state where a license is required or if the organization continues to solicit after its license or permit has expired, the organization is breaking the law.  The organization, or its officers and Directors/Trustees, could be subject to fines and/or imprisonment.

Worst of all, such activity is considered by regulators (and oftentimes, the public) to be a species of fraud.  The conviction must be reported to every other state in which the nonprofit is registered.  Such convictions then become a matter of public record so any reporteror potential donor/grantmaker can find them. Therefore, these convictions become a more or less permanent (there is no provision for the convictions to “disappear” after a certain number of years) threat to the organization’s reputation and goodwill.