TWEETS OF THE WEEK

Nonprofit Tweets of the Week – July 18, 2014

Businesswoman Conducting Meeting In Boardroom

This week featured Malala Day and Bastille Day. And today is Nelson Mandela Day (“take responsibility for making the world a better place, one small step at a time”)! Have a listen to Beyonce’s Run the World (Girls) while perusing this week’s tweets on nonprofits, philanthropy, governance and social enterprises:

  • Nonprofit Quarterly: House slashes IRS tax enforcement division by 25% & total budget by 13%, gutting expectations of robust oversight http://ow.ly/zgWRK
  • Sandra Feinsmith: IRS to Rubber-Stamp Tax-Exempt Status for Most Charities After Scandal | TIME
  • Gene: Hobbled IRS can’t stem ‘dark money’ flow Public Integrity | IRS Nonprofit Unit sidelined
  • Erin Bradrick: IRS to Ease Process of Approving Tax-Exempt Organizations with form 1023-EZ: http://shar.es/Nxhqf
  • National Council of Nonprofits: New principles of recommended best practices 4 leadership & organizational culture identified by @SmartNonprofits http://buff.ly/1jyymr3
  • National Council of Nonprofits: Updated Principles and Practices for #nonprofit excellence Thank you @SmartNonprofits 4 your leadership http://buff.ly/1mSdoDO
  • Independent Sector: We wrk hard to build capacity for emerging ldrs in the NP sector. Here are 4 things we’ve learned along the way: http://ow.ly/zbvsc
  • La Piana Consulting: Five obstacles to #nonprofit partnerships http://ow.ly/zhBxV  “Making Decisions or Making Nice?” [Blog] #collaboration
  • Philantopic: [Report] Lessons in #FunderCollaboration http://owl.li/z2VmQ @PackardFdn @BridgespanGroup #philanthropy
  • Rob Reich: Worthwhile read from @jcanales on the evolving role of foundations in the US. Chronicle of Philanthropy
  • AAPIP: 40% of all giving circle donors are under 40; 64% of minority donors http://ow.ly/z3KUr via @Philanthropy @AAPIPcircles
  • Council on Foundations: A New Form Of Giving http://ow.ly/z2TPG via @Forbes #philanthropy #csr
  • Nonprofit Quarterly: YMCAs must continue to fend off challenges to their tax-exempt status http://ow.ly/zcxRC
  • Tech Soup: Net neutrality: What it is and why #nonprofits should care. http://bit.ly/1sfuqxT | #nptech
EVENTS

Tony Martignetti Nonprofit Radio

 

tony-in-the-studio

Tony Martignetti Nonprofit Radio is celebrating its 200th show this Friday. 

I hope you’ll join Tony for Nonprofit Radio’s 200th show at 10:00 am PT / 1:00 pm ET on Talking Alternative or later on iTunes.

Board relations. Fundraising. Volunteer management. Prospect research. Legal compliance. Accounting. Finance. Investments. Donor relations. Public relations. Marketing. Technology. Social media. Every nonprofit struggles with these issues. Big nonprofits hire experts. The other 95% listen to Tony Martignetti Nonprofit Radio. Trusted experts and leading thinkers join Tony each week to tackle the tough issues. If you have big dreams but a small budget, you have a home at Tony Martignetti Nonprofit Radio.

Nonprofit Radio attracts 9,000 listeners each week from all over the world. It’s an invaluable resource, particularly for small and medium-sized nonprofits that may not have the access to the wealth of experts Tony is able to bring to the show. I’ve had the great pleasure of being a regular contributor since 2011.

Congratulations Tony! And thank you for your great contribution to the nonprofit sector.

Nonprofit Radio 200th

EVENTS

CalNonprofits 2014 Policy Convention

logo-convention-2014-banner

This year’s CalNonprofits Policy Convention is an assembly of nonprofit leaders with thought-provoking views and insights on the crucial policy issues facing nonprofit organizations today. It is designed to spark dialogue and “big-picture” thinking.

I’ll be joining Public Counsel senior staff attorney Sarah Stegemoeller in presenting a Pre-Convention workshop on Hot Topics in Nonprofit Law:

A multi-topic potpourri of legal issues and very practical advice about charitable fundraising, election year challenges for nonprofits, hot-button employment law issues, asset diversion/financial controls, lobbying, unrelated business income issues, social enterprise and social media – just to name a few!

The Convention will be highlighted by the release of Causes Count: The Economic Power of California’s Nonprofit Sector — the first report of its kind to examine the sector’s size, scope and economic impact on California. I’m also looking forward to the closing plenary debate on the impact of hybrid organizations and social enterprises on the nonprofit sector. Rich Cohen of The Nonprofit Quarterly and nonprofit attorney Cecily Jackson-Zapata will be among those participating in the debate.

We are passionate proponents of nonprofit advocacy and are huge fans of CalNonprofits and the policy-oriented direction it is taking under its esteemed CEO Jan Masaoka. Nonprofit leaders will benefit greatly from attending both the Policy Convention on August 1 and the Pre-Convention Workshops on July 31. Hope to see you there!

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – July 11, 2014

Beautiful Little Business Woman With Briefcase

I’ll be on Nonprofit Radio today at 10:30 am PT / 1:30 pm ET discussing executive succession planning. Have a listen to the Eagles’ New Kid in Town while perusing this week’s tweets on nonprofits, philanthropy, governance and social enterprises:

  • Kate Barr: Prep for @npquarterly webinar about financial meltdowns includes this post on why board members miss red flags. http://ow.ly/yTg7t [Ed. On the webinar, Kate cited the most common troublesome financial management problem - persistent structural deficits - and the worst financial management decision - paying creditors making instead of the IRS.]
  • Pursuant: What can we learn about grant writing from the Declaration of Independence? @janmasaoka answers – http://ow.ly/ygeY0
  • Yorba Foundation: The new 501(c)(3) and the future of free software in the United States: The IRS’ alarming new view of open source. Gnome
  • Harvard Business Review: There Are Risks in Having the CEO’s Pals on the Board http://s.hbr.org/1m9IRzv
  • Debra Beck: Governing for impact: Asking different strategic questions, gathering different data http://bit.ly/VScPz1 #nonprofit
  • Nonprofit Finance Fund: New blog about #nonprofit mergers & collaborations highlights challenges & opportunities: http://ow.ly/yS8Nc
  • Sandra Feinsmith: Why You Should Be Using Your Accountant for More Than Taxes Entrepreneur
  • Nonprofit Quarterly: The rent is too damn high: Over a dozen #SF #nonprofits move to #Oakland, while others are barely hanging on http://ow.ly/ySZSm
  • Alliance: What’s next for community philanthropy? @globalfundcf http://ow.ly/yTU0I
  • Ashoka: “Don’t be in a hurry – social change is a long game” 5 pros offer advice to young #SocEnts: http://onforb.es/1o27MlP
  • Stanford Social Innovation Review: Jeff Bradach @BridgespanGroup will speak at this year’s #npinstitute. Read his article “Scaling Impact:” http://ow.ly/yYp9w #nonprofit
BOARDS / GOVERNANCE

Executive Succession: 10 Tips for Boards

Business relay race

Executive succession planning is undoubtably one of the board’s most important responsibilities. Many, if not most, nonprofit boards will need to deal with finding a new executive within the next 5 years. And selecting the individual who will lead the organization’s day-to-day management, implement the organization’s plan, follow the board’s directives, ensure legal compliance, and reflect the organization’s values is perhaps the most critical decision a board will make.

CompassPoint’s Daring to Lead 2011: A National Study of Nonprofit Executive Leadership found that 67% of current executives anticipated leaving within 5 years.

10 tips for your board:

  1. Create or update your executive’s job description. Be prepared to review your executive based on this description. So make sure it captures your priorities.
  2. Start a conversation about the organization’s need for an executive succession plan. And the board members’ fiduciary duties to develop one. Consider the need for both (a) an emergency plan for an unexpected departure with no or little notice and (b) a more strategic, long-range plan which might involve an internal pipeline, broader search, and/or interim executive.
  3. Task a committee to develop succession plans. Recruit from outside of the board if necessary to get a broad range of expertise, experience, and perspectives.
  4. Get the buy-in and active participation of the current executive. Tactfully. Unless removing or terminating the executive is a consideration. But that will need to be covered in a future post.
  5. Consider engaging a professional succession planning consultant in the process. If hiring the executive is arguably your most important responsibility as a board, you should make sure you allocate adequate resources to do this right.
  6. Be informed about the market and the organization’s position/status with respect to an executive search. What are your organization’s strengths, weaknesses, opportunities, and challenges? How is your organization viewed in its space? Will you offer a competitive salary?
  7. Determine the qualities, expertise, experience, perspectives desired in the new executive. You may be looking for someone quite different from your current executive. Such determination should be made thoughtfully with lots of discussion. Don’t simply ask each director to prepare a list on her or his own and allow a consultant to collate the responses.
  8. Put on your best appearance. Make sure you get things in order to help assure you don’t turn off the best candidates. A legal compliance check may be in order. An engaged board, evident values, healthy financials, happy culture, and attractive orientation package may make a big difference in securing the right executive.
  9. Approve the compensation to be offered before it is presented to a candidate. For many organizations, using the rebuttable presumption of reasonableness procedures would be a sound risk management strategy that may effectively defend the board from a charge of excessive compensation (in legal terms, an excess benefit transaction that can expose the executive and board members who knowingly approved the compensation to penalty taxes sometimes referred to as intermediate sanctions). if you want to provide for the possibility of bonuses, include a clear description of that in the offer letter and provide a cap that is approved by the board as part of the total possible compensation, which must be fair and reasonable to the organization.
  10. Exercise reasonable care in vetting the candidates. Make sure those persons selected to interview the candidate are knowledgeable about how to conduct an interview, whether formal or informal. If the board gets back a glowing review from someone who just asked softball questions and loves boilerplate answers, you may end up hiring a strong interviewee but weak executive. And in a worst case scenario, an uninformed representative might ask the wrong questions causing the organization to be seen in a negative light or exposing the organization to employment law-related liability.

Needless to say, selecting the right candidate may be pivotal in maximizing the effectiveness and efficiency of the organization in advancing its mission. And it may make your board service all the more rewarding.

 

Additional Resources:

Building Leaderful Organizations: Succession Planning for Nonprofits (Annie E. Casey Foundation)

Leadership Development and Succession (National Council of Nonprofits)

Nonprofit Executive Succession-Planning Toolkit (Federal Reserve Bank of Kansas City)

 

Nonprofit Radio

 

nonprofit radio

I’ll be on Nonprofit Radio discussing these issues with host Tony Martignetti at 10:30 am PT / 1:30 pm ET on Friday, July 11, 2014. Join us or catch us later on iTunes.

FUNDRAISING & CHARITABLE GIVING RISK MANAGEMENT

Nonprofit Crowdfunding Risks

crowd funding word cloud

The popularity of nonprofit crowdfunding is undeniable. Last year alone, it is estimated that $5 billion was raised through global crowdfunding with about 30 percent of that total going to social causes. While that figure pales in comparison to the approximately $300 billion raised by charities in the US over the same time period, the number of donation and reward-based crowdfunding has increased by more than 85 percent worldwide in 2012 over the previous year. And it is expected to continue to grow.

With all of the excitement around nonprofit crowdfunding, it is easy to overlook some of the potential risks to this fundraising model.

Charitable Solicitation Registration

Fundraising on popular crowdfunding platforms, such as Indiegogo and GoFundMe, allows nonprofits to broaden their support base. An organization can be operating in San Francisco, and receive funds from an individual in New York City as a result of its crowdfunding campaign. This type of fundraising allows an organization to gain national exposure with very little upfront capital. However, it also potentially exposes the organization to the jurisdiction of every state where it is deemed to engage in charitable solicitation based on its crowdfunding efforts.

Currently, thirty-nine states and the District of Columbia have laws governing charitable solicitation. Each state has its own unique laws and regulations regarding what qualifies as solicitation as well as the when registration is required. For example, California law defines “solicitation for charitable purposes,” as any request, plea, entreaty, demand or invitation to give money or property in connection with an appeal for charitable purposes or in which the name of the nonprofit is used as an inducement for making a gift or in which any statement is made that the gift will be used for charitable purposes. Under New York law, “solicit” includes a direct or indirect request for a contribution, whether expressed or implied, through any medium. A strict reading of most state laws regarding charitable solicitations within a particular jurisdiction would likely require a nonprofit to register.

Most states require registration by an organization before making any charitable solicitation within the state. California, however, does not require registration until an organization receives funds or property for charitable purposes and then, it must register within 30 days of receiving the qualifying charitable assets.

The failure to register can result in both civil and criminal penalties and vary among the states. Potential penalties include state fines, requiring the nonprofit to return all solicited funds or ordering the nonprofit to cease soliciting donations within the state until registration is completed.

As you can see, there are distinctions to each state’s charitable solicitation laws. It could be quite burdensome for a small nonprofit to comply with the charitable solicitation laws of all of the applicable jurisdictions, but the penalties for failing to comply can be costly. In addition, the IRS now requires nonprofits to provide information about their state registrations on their Form 990, the annual reporting return that certain federally tax-exempt organizations must file with the IRS. If a nonprofit files an incomplete or inaccurate Form 990, the IRS can impose harsh financial penalties.

There has been some debate as to whether internet activity, such as fundraising on crowdfunding platforms, triggers state solicitation registration requirements. Some guidance is provided under the Charleston Principles, nonbinding principles drafted by the National Association of State Charity Officials (NASCO) in 2001.

Under the Charleston Principles, a nonprofit would be required to register for online charitable solicitations if the nonprofit solicits donations through an “interactive website”; and the nonprofit either: (i) “specifically targets persons” located in the subject state for solicitation; or (ii) receives contributions from the state on a “repeated and ongoing basis or a substantial basis” through its website.

Even if a nonprofit could argue that it did not solicit charitable funds within a state through its crowdfunding campaign, the follow up communication from the nonprofit to the donor, whether it be by email or letter (including the letter verifying the tax deductible donation) would be considered to target a resident of that state and would trigger the registration requirement.

Commercial Fundraisers

Under California law, a commercial fundraiser is a person or corporation paid by a nonprofit to raise money on the nonprofit’s behalf. The nonprofit pays the for-profit business either a flat fee or a percentage of the donations collected in the nonprofit’s name. A commercial fundraiser must register with the Attorney General’s Registry of Charitable Trust before soliciting charitable funds.

In my previous post, Crowdfunding Platforms & Commercial Fundraisers, I wrote that many of the well-known crowdfunding sites, such as Indiegogo and GoFundMe, do not appear to meet the California definition of a commercial fundraiser as they do not actively solicit funds on behalf of nonprofits, nor do they on their own, or through a compensated person, actually receive or controls the funds solicited by individuals or organizations for charitable purposes. However, with the large number of crowdfunding platforms in existence, a nonprofit may unwittingly campaign on a platform that falls within the definition of a regulated commercial fundraiser because it receives or controls the funds raised.

A commercial fundraiser typically has several of its own registration and reporting requirements. In addition, it may be required to enter into a written contract for each solicitation campaign, event, or service. A nonprofit may not be permitted to contract with any unregistered commercial fundraiser to solicit for charitable purposes and will be required to exercise oversight over the campaigns operated on its behalf. The Attorney General has the discretion to impose fines and other penalties, including civil and criminal actions, on nonprofits and unregistered commercial fundraisers who do not comply with the law.

Fraud and Misrepresentation

Nonprofits and commercial fundraisers are prohibited from misrepresenting the purpose of the charitable organization or the nature or purpose or beneficiary of a solicitation. Misrepresentation may be established by word, by conduct, or by failure to disclose a material fact. They are also prohibited from engaging in fraud or using any deceptive practice that creates a likelihood of confusion or misunderstanding.

The attorney general can file a lawsuit against a nonprofit or a commercial fundraiser who engage in misrepresentations or fraud while soliciting for charitable purposes. Earlier this year, Washington State Attorney General Bob Ferguson filed the first consumer action lawsuit over a project by an individual who failed to deliver a promised horror-themed decks of cards to individuals who crowdfunded his project on Kickstarter. Although this lawsuit was not against a nonprofit or commercial fundraiser, it does show that state lawmakers are paying attention to crowdfunding activities and are willing to bring suit against defrauders.

Nonprofits also should be aware that unscrupulous individuals may engage in unauthorized or fraudulent crowdfunding campaigns using the nonprofit’s name. To avoid fraud and misrepresentations, organizations should provide clear guidelines for crowdfunding as part of their overall gift acceptance policy. They should also provide individual supporters with clear messaging guidelines and ensure that these guidelines are followed. Many of these sites, including Indiegogo, allow for a “Verified Nonprofit Campaign,” badge to be placed on the campaign page to certify to contributors that funds will go directly to a verified nonprofit. Again, not all crowdfunding platforms will offer such a service, and therefore, it is important for organizations to provide individual supporters with clear guidance for campaigning on their behalf.

Crowdfunding can be a wonderful tool and resource for nonprofits to raise funds, but nonprofit leaders should be aware of potential associated legal risks and be prepared to comply with the laws of several jurisdictions.

Resources

Regulation of Charities by the California Attorney General

Solicitation and Collection of Funds for Charitable Purposes (State of New York)

State Charitable Solicitation Registration Requirements (Asiatico & Associates, PLLC)

Fundraising Registration – Does Your Nonprofit Need to Register? (Nolo)

 

- Michelle Baker

Michelle Baker is is a San Francisco-based attorney interested in social impact.

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – July 3, 2014

Fireworks

We wish all of our readers a happy 4th of July! Have a listen to Neil Diamond’s (They’re Coming to) America while perusing this week’s tweets on nonprofits, philanthropy, governance and social enterprises:

Chronicle of Philanthropy: IRS releases EZ application for charity status http://ow.ly/yHleT Earlier coverage of criticism: http://ow.ly/yHmnH
Gene: Nonprofit Human Resources Best Practices Toolkit #501conference #HR
Law for Change: New on #LawForChange Blog: DIY #Nonprofit Law – Top 5 Mistakes http://law4ch.org/VD5Tph by @charitylawyer
Nonprofit Quarterly: The ambition to create change and good board governance can easily coexist http://ow.ly/yIh0X
Gene: The Dirty Dozen: Obstacles to Having a Great Board #501conference #governance
Debra Beck: A #Nonprofit Board Member’s Bill of Rights http://bit.ly/TJbcC3
Debra Beck: #Nonprofit boards (& everyone else) take note @JaneBozarth: Forbes: Why workplace training fails 
Gene: Mergers, Acquisitions, and Affiliations Involving Nonprofits
Independent Sector NGen: 5 important Qs frm @Diaviv that organizations should ask themselves RE: diversity, inclusion, recruitment & retention http://ow.ly/yHsvZ
Bridgespan Group: 5 critical elements for successfully growing national #nonprofit networks @BBBSA @BGCA_Clubs #BridgespanClassic http://bit.ly/1sHVeIi
Peter Panepento: 5 things your foundation should know about the future of impact investing http://ow.ly/yHg94
Jed Emerson: “How The U.S. Government Can Boost Impact Investing And Social Enterprise” ( http://onforb.es/1nWOuOK ) #impinv

IRS & FEDERAL TAX ISSUES

Form 1023-EZ Streamlined 501(c)(3) Exemption Application

Easy Street

On July 1, 2014, the IRS released Form 1023-EZ, a short form online application for small organizations seeking a determination of tax-exempt status under IRC 501(c)(3). For organizations with actual and projected annual gross receipts of $50,000 or less, the new Form will serve to minimize the complexity of applying for exemption. And perhaps more important to the IRS, it will help the Service process the 60,000 or so applications it receives each year in a more reasonably timely manner and get through the current backlog that has resulted in an average processing time of 9 months.

An earlier draft of Form 1023-EZ submitted for public comment contemplated an annual gross receipts eligibility threshold of $200,000. But this draft received criticism from many sources, including from the author (see our earlier post Proposed Form 1023-EZ). Restricting its use to very small organizations helps alleviate some, but not all, of the policy concerns.

In the IRS press release, IRS Commissioner John Koskinen explained: “We believe that many small organizations will be able to complete this form without creating major compliance risks. Rather than using large amounts of IRS resources up front reviewing complex applications during a lengthy process, we believe the streamlined form will allow us to devote more compliance activity on the back end to ensure groups are actually doing the charitable work they apply to do.”

Eligibility Criteria:

You must answer “No” to all 26 Questions on the Form 1023-EZ Eligibility Worksheet starting on page 11 of the Instructions for Form 1023-EZ, including:

  • Do you project that your annual gross receipts will exceed $50,000 in any of the next 3 years?
  • Have your annual gross receipts exceeded $50,000 in any of the past 3 years?
  • Do you have total assets in excess of $250,000?
  • Were you formed under the laws of a foreign country (United States territories and possessions are not considered foreign countries)?
  • Are you a limited liability company (LLC)?
  • Are you a successor to a for-profit entity?
  • Are you a church or a convention or association of churches described in section 170(b)(1)(A)(i)?
  • Are you a school, college, or university described in section 170(b)(1)(A)(ii)?

 

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – June 27, 2014

American Flag for Independence Day

Team USA advanced out of the Group of Death to the round of 16 in the World Cup! Have a listen to K’naan‘s Wavin’ Flag while perusing this week’s tweets on nonprofits, philanthropy, governance and social enterprises:

  • Moss Adams: The #IRS has plans for #tax-exempt organizations. We provide a brief update: http://ow.ly/ytRLh
  • New York Times: Testy Exchange Erupts as I.R.S. Chief Is Questioned on Messages http://nyti.ms/1sAE7In
  • Law For Change: NY Nonprofit Revitalization Act’s Effect on CPAs, Boards, and #Nonprofit Management http://law4ch.org/1lSNJL1 [Ed. The effective date for most of the Act's provisions is July 1, 2014.]
  • Center for Nonprofit Management: Did you miss the #501conference? Now is your chance to hear and see what you missed! http://cnmsocal.org/501conference/
  • Nonprofit Quarterly: How should nonprofits use loans wisely? And when should you borrow? A 101 guide to borrowing: http://ow.ly/yottj
  • Philanthropy Northwest: Freedom Funders: Philanthropy and the Civil Rights Movement + lessons for today’s social justice funders via @ncrp http://j.mp/Tjaz1o
  • Philantopic: Reading: “What We’ve Learned About Program-Related Investments” http://owl.li/yg7KT @Rockefeller Fdn #PRIs
  • BDO Nonprofit: We just released the Summer 2014 Nonprofit Standard Newsletter! For updates – http://bit.ly/1nDqEZj
  • Social Enterprise Alliance: Start-up success: six lessons for aspiring social entrepreneurs http://gu.com/p/3q3eg/tw
  • Global Impact Investing Network: After great collaborative efforts, the #USImpInvReport is done & ready for policymakers. More info: http://NABImpactInvesting.org #impinv
FUNDRAISING & CHARITABLE GIVING

Crowdfunding Platforms & Commercial Fundraisers

Blue Donate online

What keeps certain crowdfunding platforms like Indiegogo from falling within the commercial fundraiser regulations?

Crowdfunding for charities is not a new concept, but the use of third-party crowdfunding platforms, such as Indiegogo and GoFundMe have become extremely popular in the past few years. These crowdfunding platforms not only provide a venue to host charitable campaigns, but they also manage donations and track the progress toward the fundraising goals. In exchange for these services, the crowdfunding platforms charge a fee. For example, Indiegogo charges a fee of 4% for projects that meet their funding goal, and 9% for projects that partially meet their funding goal.

In 2013, it is estimated that $5 billion was raised through global crowdfunding with about 30 percent of that total going to social causes. With so much money being raised for charities through crowdfunding platforms, why aren’t these platforms regulated as commercial fundraisers?

A commercial fundraiser for charitable purposes is defined under California law as any individual, corporation, or other legal entity that for compensation does any of the following:

  • Solicits funds, assets, or property in California for charitable purposes.
  • As a result of a solicitation of funds, assets, or property in California for charitable purposes, receives or controls the funds, assets, or property solicited for charitable purposes.
  • Employs, procures, or engages any compensated person to solicit, receive, or controls funds, assets, or property for charitable purposes.

While crowdfunding sites, such as Indiegogo, do receive compensation for hosting campaigns on their websites, Indiegogo does not appear to actually solicit funds (request gift or money) on behalf on the charity. Instead, the actual content of the campaign is controlled by the campaign creator and it is up to the campaign creator to provide a compelling enough story to raise funds. Indiegogo does not actively solicit individuals to donate to campaigns on its website, but instead it provides an online platform where potential contributors (or donors) can review and select from hundreds of different campaigns for both charities and for-profit entities.

In addition, crowdfunding platforms generally do not themselves, and do not through compensated persons, actually receive or control the funds solicited by individuals or organizations for charitable purposes. The funds raised on Indiegogo are processed through PayPal and are disbursed to campaign owners once the campaign is completed.

Many crowdfunding sites are apparently aware of the potential confusion as to whether they fall under states charitable solicitation laws, including the California commercial fundraiser statute. On its website, GoFundMe posted a special note to regulatory agencies:

We do not engage in any solicitation activities; such activities are carried out by our users on their own initiative. Additionally, our “Charity Donations” are processed through a separate business entity, FirstGiving.

There has also been some discussion as whether the Charleston Principles, a set of nonbinding guidelines in response to the proliferation of web site solicitations developed by the National Association of State Charity Officials (“NASCO”), could provide any guidance on the potential regulation of charitable fundraising through crowdfunding platforms.

These Principles attempt to address the type of online solicitation activities by charities that would trigger a state’s registration requirements. Generally, the following activities will require a charity to register for online charitable solicitations:

  • A charity is domiciled in the state and passively or actively solicits contributions over the internet.
  • A charity is domiciled in the state and its principal place of business is located in that state.
  • A charity is not domiciled in the state, but its non-internet activity in that state would require registration under existing law.
  • A charity solicits donations through an “interactive website”; and the charity either: (i) “specifically targets persons” located in the subject state for solicitation; or (ii) receives contributions from the state on a “repeated and ongoing basis or a substantial basis” through its website.

These guidelines were drafted before crowdfunding platforms such as Indiegogo and generally address actions by actual charities raising funds; however, there is language in the guidelines that give the impression that state regulators anticipated the regulation of such platforms.

The Principles provide an exemption to the registration requirements for “entities that provide solely administrative, supportive or technical services to charities without providing substantive content, or advice concerning substantive content”. However, if these service providers do more than simply provide technical services and actually solicit or promote a website, then registration may be required. Compensation for services based on the amount of funds raised may be a strong indication the entity is doing more than simply providing technical services. If these Principles were binding, one could argue that sites such as Indiegogo, who charge fees based on the amount of funds raised may be required to register with the state.

However, the reality is that the law has not caught up with technology and most state laws regarding charitable solicitations and commercial fundraisers were drafted before the popularity of charitable fundraising on crowdfunding platforms. At this point, it appears they operate in a gray area of the law. Although the Charleston Principles may have anticipated fee-based service providers such as Indiegogo and the potential need to regulate them, these principles are nonbinding. As the popularity of charitable fundraising on crowdfunding platforms continue to grow, it will be interesting to see if and how the states will regulate them.

Resources:

Charitable Solicitation Regulations: Frequently Asked Questions (Adler & Colvin)
The Long Arm of Charitable Solicitation Law (Charity Lawyer Blog)
Internet and Social Media Solicitations: Wise Giving Tips (NASCO)
Indiegogo Terms of Conditions
GoFundMe Terms and Conditions
Crowdfunding For Good Now A Growing Global Movement (Forbes)

 

- Michelle Baker

Michelle Baker is a San Francisco-based attorney interested in social impact.