Bruce R. Hopkins - The Law of Fundraising

A rare rule prohibits a professional fundraiser from receiving compensation from a charitable organization if the compensation depends wholly or partly on the number or value of charitable contributions that result from the effort of the fundraiser.

The information filed in accordance with a state's charitable solicitation act, whether contained in an application for registration, annual report, contract, or other document, is a matter of public record. This requirement encompasses information filed by charitable organizations, professional fundraisers, professional solicitors, and commercial coventurers. The fact that these records are public is usually stated in the statute.

For example, the law may provide that statements, reports, professional fundraising counsel contracts or professional solicitor contracts, and all other documents and information required to be filed shall become government records in the department or agency and be open to the general public for inspection at such times and under such conditions as may be prescribed.

This type of provision is frequently buttressed by a record-keeping requirement. In almost all instances, this record-keeping obligation is imposed on the soliciting charitable organization; however, in some states, the requirement is confined to professional fundraisers, professional solicitors, and/or commercial coventurers.

Many of these laws require that the information be maintained, by the regulators and/or the regulated, for a stated period, usually three years. Where the records must be maintained by a regulated entity (such as the soliciting charitable organization or professional fundraiser), the law often requires that the information be open to inspection at all reasonable times by the appropriate officials of the state. Most of these laws require a charitable organization, and/or related professional fundraisers, professional solicitors, and commercial coventurers, to keep “true and complete” records to ensure compliance with the laws requiring disclosure of information and the availability of records.

Many of the state charitable solicitation acts require that the relationship between a charitable organization and a professional fundraiser, and/or between a charitable organization and a professional solicitor, be evidenced in a written agreement. This contract must be filed with the state soon after the document is executed.

A few of the states with laws pertaining to commercial coventurers have a like requirement with respect to contracts entered into between charitable organizations and business enterprises.

The states that make these requirements applicable to charitable organizations and professional fundraisers, but not to charitable organizations and professional solicitors, are often the states that define a professional solicitor as one who is an employee of a professional fundraiser. 66

Several state charitable solicitation acts contain rules that mandate certain provisions in a contract between a charitable organization and a professional fundraiser, professional solicitor, and/or commercial coventurer. 67 The law may require that any one of these three types of contracts must contain (1) a concise and accurate statement of the charitable organization's right to cancel; (2) a concise and accurate statement of the period during which the contract may be canceled; (3) the address to which the notice of cancellation is to be sent; (4) the address of the secretary of state, to whom a duplicate of the notice of cancellation is to be sent; and (5) a statement of the financial arrangement between the parties.

A state charitable solicitation act often contemplates that a charitable organization, professional fundraiser, and/or professional solicitor will appoint a registered agent in the state where contributions are being solicited. A registered agent is a person who, as agent for the entity, is the formal point of contact for anyone who is required to or desires to communicate with the entity. In general, organizations (particularly corporations) are required by law to maintain a registered agent in the state or states in which they are formed and headquartered, and in any other state in which they are doing business. A registered agent can be an individual who is a resident of the state, a corporation that is authorized by the state to function as a registered agent for corporations, or (in some states) a lawyer who is a member of the bar of that state.

Thus, where a charitable organization, professional fundraiser, or professional solicitor is incorporated under the law of a state or has its principal place of activity or business in a particular state (a domestic state), it is required to appoint a registered agent in conformity with the requirements of that state.

Where a charitable organization, professional fundraiser, or professional solicitor has its principal place of activity or business in a state other than that in which the charitable solicitation is being conducted (a foreign state), however, it likely will not have appointed a registered agent in that state. 68 In this situation, the charitable solicitation act in several states provides that, where the foreign charitable organization, professional fundraiser, and/or professional solicitor participates in a charitable solicitation in the state, the administrator of the act is deemed, by virtue of the solicitation activity, to have been irrevocably appointed as its agent for purposes of service of process and similar functions.

Occasionally, rules of this nature are applicable with respect to commercial coventuring.

Nearly all of the state charitable solicitation acts contain a list of one or more types of conduct—often termed prohibited acts —that may not be lawfully engaged in by a charitable organization (and perhaps a professional fundraiser, professional solicitor, and/or commercial coventurer).

These prohibited acts may entail some or all of the following:

A person may not, for the purpose of soliciting charitable contributions, use the name of another person (except that of an officer, director, or trustee of the charitable organization by or for which contributions are solicited) without the consent of the other person. 69 This prohibition extends to the use of an individual's name on stationery or in an advertisement or brochure, or as one who has contributed to, sponsored, or endorsed the organization.

A person may not, for the purpose of soliciting contributions, use a name, symbol, or statement so closely related or similar to that used by another charitable organization or government agency that it would tend to confuse or mislead the public. 70

A person may not use or exploit the fact of registration with the state to lead the public to believe that the registration in any manner constitutes an endorsement or approval by the state.

A person may not misrepresent to or mislead anyone, by any manner, means, practice, or device, to believe that the organization on behalf of which the solicitation is being conducted is a charitable organization or that the proceeds of the solicitation will be used for charitable purposes, where that is not the case.

A person may not represent that the solicitation is for or on behalf of a charitable organization or otherwise induce contributions from the public without proper authorization from the charitable organization. 71

Some states prohibit a professional solicitor from soliciting for a charitable organization unless the solicitor has a written and otherwise valid authorization from the organization, has the authorization in his or her possession when making solicitations, and displays the authorization upon request to the person being solicited, police officers, or agents of the state.