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Internet Fundraising

  • Are your registered in your state?

  • You may need to register in all states

Many organizations are considering the use of the Internet to raise funds for their nonprofit work. However, there are laws that can and have been enforced that can cause serious legal and financial problems if proper registration is not made.

Here are the basics. The Internet is unique in that a Web site is available to be viewed not only across the US but across the world. While this access is extraordinary and inexpensive, it also makes your organization subject to many jurisdictions that regulate fundraising activity. If you provide opportunities for online fundraising and your web site can be viewed by citizens of a particular state or even country, generally you are considered to be operating there and soliciting funds.

While some believe states will not take action to impose fines and other penalties upon those who do not register, rest assured there is an increase in enforcement activity with the northeastern US leading the way. Some states even provide profiles of enforcement activity and who has been affected on their Web sites.

A recent review of enforcement activities has shown that states will fine charities, firms that solicit funds on their behalf, and even firms that only offer counsel to charities. Each type of entity has different registration requirements but each must assure that they comply with state laws where they operate.

Registration is required in at least 40 states and, in an attempt to facilitate an easier method to comply, a Uniform Registration Form exists that can be used in at least 38 states. Even so, some of those states require an extra paragraph of information or supplemental documentation that keeps registration requirements a time-consuming task. As there are fees required for registration, compliance can also be costly. There are exemptions to registration that can include religious organizations, colleges and universities, and organizations that raise less than $5,000 annually, but each state has different laws and should be researched.

For fundraising solicitors or fundraising counsel, the cost of registering in all states can be quite high and complying with laws is also time consuming as they cannot use the Uniform Registration form. Some states require contracts with potential clients to contain specific language and that those contracts be submitted to state agencies for approval before any activity can begin. Not complying can be costly as some have paid fines of $70,000 and higher for not submitting contracts to the state.

Even if you utilize fundraising services that operate as donor advised funds such as The Network for Good, the onus is on your organization to comply with registration requirements. Check their guidelines carefully as you must sign a statement that you understand this possible legal issue and accept responsibility.

What is the answer? Right now there is not a definitive one. Be careful and learn as much as you can about compliance in those jurisdictions where you are most likely to raise funds. Check with legal counsel as to any options for excluding fundraising from states where you are not registered or language that can be included for online fundraising that opts out of accepting or soliciting gifts from particular states or countries. When in doubt about your fundraising status in a particular state, comply with the law.
 

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