Bruce R. Hopkins - The Law of Fundraising

Some states have provisions in their charitable solicitation acts that go beyond the usual regulation of the process of raising funds for charitable purposes.

In many states, it is expressly unlawful for a charitable organization to solicit and/or expend funds raised for purposes that are not charitable or for purposes not referenced in the application submitted as part of the registration process.

Most of the states have disclosure rules as part of their charitable solicitation acts, as a condition to a lawful fundraising effort. A few states have point-of-solicitation disclosure requirements imposed on charitable organizations, and several states have such requirements with respect to solicitations by professional solicitors.

Many states have rules concerning the solicitation of tickets to be used at promotional or fundraising events.

In some states, the law imposes specific requirements on the boards of directors of soliciting charitable organizations. Directors of charitable entities may be expressly obligated to supervise the organizations' fundraising activities. A charitable solicitation law may prohibit certain conflicts of interest at the board level in the fundraising setting. One of these laws requires a charity to “substantiate a valid governing structure.” A state law has directions to the board as to investment management activities, another places limitations on the ability of a charitable organization to indemnify its directors, and under one law, a charitable organization cannot solicit funds in the state if its directors have been convicted of certain crimes.

Some states' charitable solicitation laws require a charitable organization engaged in fundraising in the jurisdiction to, in furtherance of a consumer protection objective, disclose the availability of certain information to prospective contributors.

For example, in several states, a prospective donor must be given a disclosure statement , which includes the name of the charitable organization, the address and telephone number where a request for a copy of the organization's financial statement should be directed, and a statement that relevant documents and information filed under the state's law are available from the state's regulatory office.

Some of these state laws require a legend that must be utilized in a charitable solicitation. As an illustration, one of these laws requires the following on all written solicitations and on written confirmations, receipts, or reminders subsequent to an oral solicitation:

A copy of the official registration and financial information may be obtained from the Pennsylvania Department of State by calling toll-free, within Pennsylvania, 1 (800) 732-0999. Registration does not imply endorsement.

One state requires charitable organizations to print their state registration number on solicitation materials.

These requirements impose burdens on charitable organizations that solicit contributions on a multistate basis. One organization devised an all-purpose legend that reads as follows:

You may obtain a copy of ______'s [the organization's name] financial report by writing to it at ______ [organization's address]. For your information, ______ registers with agencies in many states. Some of them will supply you with the financial and registration information they have on file.

Residents of the following states may request information from the offices indicated (the toll-free numbers are for use only within the respective states): Florida—Div. of Consumer Services, Charitable Solicitations, The Capitol, Tallahassee, FL 32339; Maryland—Office of the Secretary of State, Statehouse, Annapolis, MD 21401, 1-800-825-4510; New York—Office of Charities Registration, 162 Washington St., Albany, NY 12231; Pennsylvania—Department of State, Bureau of Charitable Organizations, Harrisburg, PA 17120, 1-800-732-0999; Virginia—Division of Consumer Affairs, P.O. Box 1163, Richmond, VA 23209, 1-800-552-9963; Washington—Office of the Secretary of State, Charitable Solicitation Division, Olympia, WA 98504, 1-800-332-4483; West Virginia—Secretary of State, State Capitol, Charleston, WV 25305. Registration with a state agency does not imply the state's endorsement. MICS _____. 72

As the foregoing indicates, the requirements of the state charitable solicitation acts can vary widely, as can the regulations, rules, and forms promulgated to accompany and expand these laws, and the enforcement activities with respect to them. This makes it difficult and expensive for a charitable organization soliciting contributions on a nationwide basis to lawfully comply with all of the varying requirements. Some states have attempted to remedy this situation by pursuing methods to bring their laws, and interpretations and enforcement of them, into some conformity with other states' requirements.

For the most part, state regulators have the inherent authority (where revision of the statutory law is not necessary) to promulgate regulations, rules, forms, and enforcement policies that are comparable to similar requirements in other states. Nonetheless, some states' charitable solicitation acts contain a provision that, if earnestly followed, could somewhat alleviate this lack of uniformity. This provision authorizes the appropriate state official to enter into reciprocal agreements with his or her counterparts in other states to exchange information about charitable organizations, professional fundraisers, and professional solicitors; accept filings made by these persons in the other states where the information required is substantially similar; and grant exemptions to organizations that are granted exemption under the other state's statute where the laws are substantially similar.

One of the contemporary trends in the development of state charitable solicitation acts is the growing number and stringency of requirements applicable to professional solicitors. The emphasis has been on increased reporting and other forms of disclosure to a governmental agency, to the charitable organization involved, and/or to the solicited public, particularly by means of a solicitation notice .

A typical requirement obligates a professional solicitor to file a solicitation notice with the regulatory body within 20 days prior to the commencement of a solicitation. This solicitation notice, which must be under oath, must include a description of the solicitation event or campaign, the location and telephone number from which the solicitation is to be conducted, the names and residence addresses of all employees, agents, or other persons who are to solicit during the campaign, and the account number and location of all bank accounts where receipts from the campaign are to be deposited. Copies of campaign solicitation literature, including the text of solicitations to be made orally, must be attached to the solicitation notice. The charitable organization on whose behalf the solicitor is acting must certify that the solicitation notice and accompanying material are “true and complete.”

In other states, the solicitation notice may require additional items of information, such as whether the solicitor will at any time have custody of the contributions received, a “full and fair” description of the charitable program for which the solicitation is being conducted, the fundraising methods to be used, the dates when the solicitation will commence and terminate, and information concerning any investigation or litigation regarding the professional solicitor's solicitation activities within the previous six years. Some states also require that a copy of the contract between the charitable organization and the professional solicitor be attached to the solicitation notice.