Working with a for-profit business to attract donations has become a popular fundraising approach for nonprofits. Requests for donations to various causes have become a routine part of checking out at grocery stores. Many retailers sell small items to benefit charities. In legal terms, a for-profit business that solicits donations on behalf of a nonprofit, and sometimes handles money for it as well, is called a commercial fundraiser for charitable purposes. Such arrangements are subject to specific rules and regulations.
A nonprofit that wants to work with a commercial fundraiser should expect some negotiations to hammer out how the arrangement will work in practice. There are a number of important mechanical rules that must be satisfied before solicitations can begin.
- Registration. California law requires commercial fundraisers to register with the California Attorney General’s Registry of Charitable Trusts before soliciting donations. Among other things, the fundraiser must post a $25,000 bond or cash deposit as part of the process. The commercial fundraiser also needs to submit a Notice of Intent to Solicit for Charitable Purposes no less than 10 days before the campaign begins. A potential fundraiser may ask the nonprofit to shoulder some of the burdens related to these processes.
- Reporting. Commercial fundraisers and the nonprofits they work with must submit annual reports to the Attorney General that disclose in detail the revenue and expenses involved in the fundraising process. Nonprofits need to evaluate whether they are comfortable with the disclosures on these annual reports.
- Written contract. A commercial fundraiser arrangement needs to be spelled out in a written contract. These contracts are not publicly disclosed. The contract will determine the rights and responsibilities of the nonprofit and the commercial fundraiser, the length of time solicitations will take place, and the methods the commercial fundraiser can and can’t use to solicit donations. It will also describe in detail how the financial side of the arrangement will function. Will the commercial fundraiser be paid a flat rate or a percentage of donations? How often will donations be remitted to the nonprofit? Will the commercial fundraiser be entitled to subtract expenses from gross receipts?
In addition to these technical rules, a nonprofit needs to take care to examine how working with a commercial fundraiser connects with the nonprofit’s mission, values, and goals. The nonprofit’s board should evaluate whether the commercial fundraiser can be relied upon to not damage the nonprofit’s reputation or harm its ability to raise donations from other sources. In the social media era there is always a risk that a commercial fundraiser will find itself faced with controversies that are beyond its control. A written contract can provide a degree of protection for the nonprofit (for example, by allowing early termination) but it cannot prevent all forms of reputational harm if the nonprofit fundraises through the wrong channel.
The Church Law Center of California provides organizational, operational, and governance advice to religious and secular nonprofits. If your organization is considering partnering with a commercial fundraiser and you have questions about how to best structure the arrangement, please give us a call to find out how we can help. We’re available at (949) 689-0437 or reach out to us through our contact page.