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:

1. 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.

2. 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).

3. 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.

Bonds

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.

The post Are You Paid to Solicit Charitable Contributions for a Charity? You May Need to Register as a Professional Fundraiser first appeared on Perlman Sandbox.

Types of Campaigns

The core of a matching gift campaign is that a “match donor” offers to make a donation in connection with donations made by the public.  Generally speaking, there are three basic types of matching gift campaigns.

1. Matching Gift. The traditional matching gift campaign is where a “match donor” pledges to match public donations, dollar for dollar, often up to a specified donation cap and/or for a specified time period.  With this type of campaign, the amount of the pledge that must be paid by the “match donor” is contingent upon the total donations received from the public in response to the campaign.
2. Challenge Grant. A challenge “match donor” grant is one that is paid only if and when a charity raises a specified total dollar amount of funds, or receives funds from a specified number of individual donors.  With this type of campaign, the fulfillment of the pledge by the “match donor” is contingent upon hitting the target donation goals from the public – this structure is not a dollar-for-dollar match, but all-or-nothing.
3. Fixed Lead Contribution. A fixed lead contribution is one where a contribution that has already been made by a “match donor” is promoted with the goal of encouraging others to join in giving towards a larger specified financial goal.  This type of campaign is often used to fund a capital campaign (e.g., the construction/ expansion of a building), or to build or significantly grow an endowment.  The fulfillment of the lead contribution is not contingent upon public donations.

Key Legal Considerations

The following are key legal issues to consider when conducting matching gift campaigns.

1. Communicate clearly about the way in which the matching gift campaign works. All material information about how the campaign works must be clearly and conspicuously disclosed in solicitations seeking matching donations.  All materials terms regarding the requirements that must be met to trigger a donation match should be clear to prospective donors at the point of solicitation.  Consider the following analogous guidance from the NY Attorney General’s office on placement of materials terms for cause marketing campaigns: “Consumers should be able to easily understand before purchasing a product or using a service how doing so will benefit a charity. . . . [The] key details should be displayed together in a clear and prominent format and size, and in close proximity to, the text used in marketing the promotion.”  Below are a few questions that will help you consider what are the material terms that should be disclosed as part of your matching gift campaign solicitations:

a. Is the donation from the “match donor” a pledge that is contingent upon receiving donations from the public, or has the donation already been received?

b. Is there a match donation cap (i.e., a maximum amount that the “match donor”) will donate?

i. Recommendations provided by the NY Attorney General’s office in connection with cause marketing advertisements may provide useful guidance in how to structure matching donation campaigns to provide transparency to donors: “If there is a donation cap, “do not saturate the market with products; limit the number of units distributed to a quantity that is reasonably expected to produce the maximum donation.”

ii. The analogous principle in a matching gift campaign would be to forecast in good faith when you expect the organization will receive donations sufficient to hit the match donation cap, and plan the campaign so that the length of the campaign and match amount (e.g., dollar for dollar) vis-à-vis the number of recipients of the appeal are such that the organization will not expect to hit the match donation cap too early in the campaign, thereby negating many or most donors’ ability to have their donations matched per the campaign terms.

iii. Ideally, consider past history from similar types of fundraising campaigns (e.g., direct mail, email, social media) to forecast when you expect you would receive donations sufficient to hit the match donation cap, and plan so that the length of the campaign and match amount (e.g., dollar for dollar) are such that the donation cap will not be met too early in the campaign, thereby negating other donors’ ability to have their donations matched per the campaign terms.

c. What is the donation match period? Must donations be received by the specified date, or merely pledged or postmarked by the specified date?

d. What is the match ratio? 1:1? 2:1?

e. To trigger the match, do the donations need to be made through a specific website, or be specifically in response to a special direct mail appeal?

2. Obtain prior consent from the donor with respect to their commitment and the organization’s plans to use it in a public solicitation. Consent should be obtained for any situations that will involve communicating with the public about a donor’s potential or previous donation. This commitment should be obtained in writing prior to receiving any funds associated with the challenge.
3. Stop promoting the matching gift incentive once the match donation cap has been reached. Consider establishing a mechanism to track in real-time the status of donations received in response to the campaign.

a. If campaign donations are made through a unique website URL, consider posting a notice on the webpage once the matching donation cap has been reached stating that the match has been fulfilled, but donations will still be gratefully accepted.

b. If the campaign is promoted on social media, consider switching posts from promoting the match opportunity to communicating that the match has been fully met.

c. If the campaign is being conducted by email or direct mail, consider including a website URL or telephone number where donors can obtain campaign status updates.

4. Properly manage restricted gift solicitations. If the matching gift campaign is being used to raise funds for a specific project or purpose, make sure that the donation goal reflects a reasonable estimate of the amount needed to fund that project or purpose. Ensure that funds received are properly booked as restricted funds, and used only for that purpose.

The post Donor Match-Making – Legal Considerations for Matching Gift Campaigns first appeared on Perlman Sandbox.

I was recently affronted by what I’d describe as an overly zealous opponent in the courtroom. His behavior certainly surpassed the above definition, extending into the realm of excessive blustering, rudeness and hostility.  He repeatedly interrupted me mid-argument and resorted to calling my client derogatory names. The offensiveness of this lawyer was so unsettling, in fact, that I felt the need to reflect on why it is integral to uphold standards of civility in our practice of law.

I turned to Appendix A of the New York Rules of Professional Conduct, which sets out “Standards of Civility.”  In the preamble to that section, it is explained that while they “are not intended as rules to be enforced by sanction or disciplinary action … they are a set of guidelines intended to encourage lawyers, judges and court personnel to observe principles of civility and decorum….”  Specifically, as they relate to my experience, the standards address lawyers’ duties to other lawyers and, in particular, suggest that “[l]awyers should act in a civil manner … [and that] [e]ffective representation does not require antagonistic or acrimonious behavior….”  Not following such standards, the preamble concludes, interrupts the judicial process and diminishes its effectiveness.

When an attorney engages in coarse behavior, it tempts one to respond in kind. When confronted with such behavior, however, I reminded myself that in my practice I represent charitable organizations.  Therefore, not only do I have a duty to myself and my profession, but I owe it to my clients to hold myself to the highest standard of professional integrity.  My conduct as a lawyer is, in many cases, the only representation of who the client is and what they stand for in the public arena of the courtroom.  Lawyers and charities depend, in large part, upon the trust of the public and civility is a currency we both trade on in gaining and maintaining that trust. Without it, our ability to advocate for the greater good of society is compromised.  And in the end, that is the reason we chose to do the work we do.

The post Standards of Civility – It’s a Lawyer’s Duty first appeared on Perlman Sandbox.

Although it might seem onerous to provide disclosures on a website, it can be used as an opportunity to direct potential donors to the site. For example, information on a social media page can offer the solicitation, embedded on the website, through the means of a link. Once on the website, donors have access to more information about the organization.

Tax exempt organizations should regularly review all of their written solicitation materials, including their websites, to consider whether they comply with the state disclosure requirements. More information about  states that require solicitation disclosures is available on our website.

The post Website Solicitation first appeared on Perlman Sandbox.