A professional fundraiser (“PFR”) is a person or entity who is hired to raise money on behalf of a charity. Forty-two states have laws regulating the activities of a PFR. Generally, these states require a PFR to register before conducting any fundraising activities, and file their contracts and campaign financial reports. They must also make certain disclosures to donors. The states’ interests are to promote transparency around charitable fundraising, protect charitable assets for their intended use, and ensure that they are not misapplied through fraud or other means.
What is a Professional Fundraiser?
A professional fundraiser (a/k/a commercial fundraiser for charitable purposes, professional solicitor or paid solicitor) is generally defined as a person or entity who, for compensation, directly solicits contributions on behalf of one or more charitable organizations. A professional fundraiser may have temporary custody of contributions and is permitted to receive percentage-based compensation.
Examples of professional fundraising activity include telemarketing, in-person meetings with prospective major donors, vehicle donations, thrift store operations, event ticket sales, auctions at charity events (including the acquisition of auction items), and operation of certain internet fundraising platforms.
Where Does a Professional Fundraiser Need to Register?
Generally, a professional fundraiser is required to register in any state where they are directly soliciting charitable contributions on behalf of a charity. With respect to internet solicitations, a state may impose its registration and reporting statutes only on a PFR’s activities that meet the constitutional requirement of “minimum contacts” with that particular state.
Acknowledging these jurisdictional limitations, and given the practical reality that applying (and enforcing) their registration requirements to every internet solicitation is virtually impossible, the National Association of State Charity Officials (NASCO) issued guidelines in 2001 known as the Charleston Principles (the “Principles”). The Principles are not binding law; however, NASCO encourages state charity regulators to use them as practical guidelines for applying their state laws to online fundraising activities.
The Principles summarize the application of state registration and reporting regimes to PFRs as follows:
- Entities domiciled within the state.
An entity is domiciled within a particular state if its principal place of business is in the state. However, according to the Principles, a physical presence within a state, such as a branch or regional office, may also be indicative of appropriate state jurisdiction.
- Out-of-state entities whose non-internet activities would require registration in the state (e.g., inbound telephone or face to face solicitations in the state).
- Out-of-state entities that solicit through an interactive or non-interactive website and either (a) specifically target persons physically located in the state or (b) receive contributions from the state on a repeated and ongoing basis, or a substantial basis, through or in response to the website solicitation.
The Principles leave the definition of “repeated and ongoing” or “substantial” to the individual states. Currently, three states, Colorado, Mississippi and Tennessee have, by regulation, formally adopted numerical thresholds. In Colorado, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least fifty online contributions, or the lesser of $25,000 or 1% of its total contributions, in online contributions during a fiscal year, respectively. In Mississippi, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least twenty-five contributions or $25,000 in online contributions in a year. In Tennessee, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least one hundred contributions or $25,000 in online contributions in a year.
Professional Fundraising Contracts
In addition to the registration requirements, state charitable solicitation statutes require that contracts between a charity and a PFR be filed in the states where solicitation activity is occurring and that they include certain provisions. Common contract provisions required by state statute including the following:
- Legal name/address of the charity
- Statement of the charitable purpose for which the solicitation campaign is being conducted
- A clear statement of the fees to be paid to the professional fundraiser
- The effective/termination dates of the contract
- A statement that the charity exercises control and approval over the content, volume and/or frequency of any solicitation
- An estimate of the amount the charity is expected to receive as a result of the solicitation campaign
- California and New York require lengthy cancellation provisions designed to allow the charity to cancel the contract within 10-15 days of signing without penalty
- Several states require the contract to be signed by two authorized officials of the charity
Campaign Financial Reports
Nearly all states that regulate PFRs require them to file a report that accounts for the funds raised in the campaign. The reports generally require disclosure of the total amount raised, the fee paid to the PFR, and certain campaign expenses. These reports are required within a certain time period following the end of the campaign (typically ninety days) or, for ongoing campaigns, annually in connection with the anniversary date of the campaign.
As part of the registration process, PFRs are required to obtain a surety bond. The purpose of the bond is to guarantee against malfeasance in the conduct of charitable solicitations. The face amount of the bonds required by the states range from $10,000 to $25,000.
Point of Solicitation Disclosures
Virtually all states require a PFR to identify its status as a professional fundraiser, and many require the PFR to disclosure that the PFR is being compensated. If asked by the potential donor, the professional fundraiser must truthfully disclose how much of the donation will go to the charity.
In addition, a number of states require solicitation disclosure notice statements on all written materials used when soliciting contributions. The required disclosures must include how additional information about the organization may be obtained as well as certain state regulatory agencies’ contact information where donors can obtain further information. Solicitation disclosure notice requirements apply to charitable organizations as well as professional fundraisers.
The solicitation disclosure notice is required to be included on every printed solicitation or written confirmation, receipt, and reminder of a contribution. Customary examples of printed solicitations are direct mail solicitations, fliers, or solicitations contained in a newsletter. Often overlooked, however, are emails or the organization’s website, which, if it includes a donate button or other request for a donation (including a link to the donate button), is considered a form of written solicitation.
The services that professional fundraisers provide can be of great value to nonprofit organizations. Understanding the regulatory framework governing professional fundraisers will help avoid missteps that can lead to actions by state regulators, including fines and penalties. It is incumbent on both the professional fundraiser and its charity clients to take the steps that ensure compliance under state charitable solicitation laws. If in doubt, it is always a good idea to seek legal counsel.