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State Charity Registration Laws

  • Charities, solicitors and counsels included

  • Fines can be quite expensive for nonprofits

Running a red light. It's against the law, it's dangerous and still people do it all the time proceeding even as the light turns from yellow to red. The practice of ignoring a system intended to protect people from harm can lead to serious consequences. Likewise, countless charities, professional solicitors and professional counsels decide to proceed with their fundraising plans ignoring registration requirements, contract review procedures or mandated practices, believing state charity regulation is either an invasion of their privacy or a set of laws without bite. If your organization has been ignoring or avoiding these laws, it's time to rethink your position. Since I am based in Pennsylvania, I will reference Pennsylvania's regulations as an example, but your state likely has similar laws and information resources.

In taking a look at Pennsylvania's Bureau of Charitable Organizations, you may be surprised to find the agency is headed by an experienced prosecuting attorney, Karl Emerson, and that its operations are funded by fines paid for violations of the state Charitable Solicitations Act. In labeling him one of the 50 most powerful and influential people in the nonprofit world, The Nonprofit Times described Karl Emerson as "an aggressive prosecutor who also thoughtfully considers the impact of his actions." Rather than an ominous warning, consider their description as accurately reflecting a fair and progressive leader who tries to find a balance between educating organizations so that they understand and comply with regulations, and pursuing those who flagrantly violate the public trust.

I find that few charities with whom I work are aware of state charity law and its consequences. Worse, professional fundraising organizations often operate while in violation of state registration laws. Charities should question the commitment to the nonprofit sector and the knowledge of a professional counsel or fundraiser who operates a business without knowing the solicitation laws that apply - particularly in a state where they are located. Granted it is more challenging to learn the laws of every state concerning solicitation, but with a little research and time, you can get a handle on the process.

Recently I worked with a client who learned for the first time that a contract would have to be reviewed by the state where they are located before any work could proceed. They had used other fundraising counsels in the past and never heard of this requirement. Upon review of their development efforts, they had three contracts with companies who were considered fundraising counsel, one was registered, two were not and none had filed the contract with the state. Yet, these companies market the depth of their expertise, knowledge and experience serving nonprofits.

The possible consequences for these companies and nonprofits are considerable. First, a charity can often break a contract that has not been approved and the company would have little or no recourse. Second, the company can be fined by the state for a violation and the state will review all previous work the company had in the state to uncover other violations. Third, if a counsel or solicitor has professional liability insurance (sometimes called errors & omissions insurance) and is sued by a charity, that insurance is probably a waste of money because all of these policies are void if a company is found to be operating in violation of the law. Consequences for the charity include fines, legal costs, loss of credibility, public disclosure of its violation of the law and possibly an order to cease solicitation of funds.

Even though these are all possibilities, an incredible number of organization operate in violation of the law. Ignorance is not a valid excuse. NASCO, The National Association of State Charity Officials, provides links to state charity offices where you can learn the requirements in areas where you operate. An organization is considered operating anywhere a solicitation is received. Obviously the Internet is available to citizens of all states and almost all countries but laws are still evolving concerning solicitations through Web sites. However, the law is established in using telemarketing and direct mail and if you use either of these methods, you are subject to the law of the states in which your solicitations are received regardless of where they originate.

It is important to learn all the laws pertaining to the operation of your nonprofit organization as solicitation laws are just one area regulation. Board members need to be aware of their responsibilities and the legal consequences that can result from their involvement with a nonprofit. Some states, like Pennsylvania, even provide a handbook for board members that summarizes board responsibilities.

All organizations should stop to take a look at their operations to be sure they and the companies they use are in compliance with applicable law. Only proceed if the light is green.

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