California’s Proposed Nonprofit “Sponsor” Disclosure Rule

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In December 2018 the California Office of the Attorney General announced proposed new rules that would make a number of important changes to the reporting forms used by nonprofits registered to do business in California. The proposed changes are still being studied, but they raise important issues that nonprofits should keep an eye on.

When a nonprofit is organized in California or begins to do business in the state, it must file an initial registration on Form CT-1 with the Attorney General’s office. The current Form CT-1 requires disclosure of a few basic facts about the organization, such as its name, tax ID number, address, and other contact details. Organizations are required to update their registration information each year by filing a registration renewal on Form RRF-1. The renewal form calls for significant disclosures about the organization’s activities, including its gross annual revenue and total assets.

The proposed rule changes would make a number of important alterations to these processes. One that may raise interesting questions for many organizations is a requirement on the proposed Form CT-1 to disclose any revenue sharing or governance sharing arrangements with any other nonprofit organizations. The proposed language cites “fiscal sponsorships and affiliations” as examples of relationships that would need to be disclosed.

If the proposed forms become official, California nonprofits will need to grapple with how to correctly respond to the new disclosure requirements. The terms “fiscal sponsorship” and “affiliation” do not have formal definitions. Absent specific guidance, organizations will need to rely on their own good faith efforts to decide when to disclose an important relationship and when to leave it out. One hopes that organizations that work closely with one-another can reach a common understanding about whether their relationship should be included on the form.

The key concern with these forms is that they are public records, and therefore can reveal information that an organization might prefer to keep confidential. This issue may be especially important for organizations with existing relationships that might need to be disclosed if the proposed rules are adopted. Contractual confidentiality obligations will need to be examined as part of the new compliance landscape. The Church Law Center of California provides legal counsel to religious and secular nonprofits. We are keeping an eye on developments related to the Attorney General’s proposed rules, and can help clients resolve questions about them. Call us today at (949) 689-0437 or through our contact page.

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