Is Crowdfunding a Good Finance Option for Nonprofits?

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Crowdfunding has become a popular buzzword in recent years. The idea behind it is that the organization or individual raising money taps into a wide network of people to attract many small donations from each of them, rather than aiming for a few, large donors. For a nonprofit that is thinking about crowdfunding as one way to raise money, it’s worthwhile understanding the nuances of the approach.

  • Crowdfunding the old-fashioned way.

Maybe the first thing to remember about crowdfunding is that the idea of getting a few small donations from many people at once is as old as the church collection plate.  The term is often used to refer to online fundraising, but it can be done in person as well. Soliciting donations from a large group can be effective, especially for an organization that has a plan for building a lasting relationship with small donors by gathering their contact information so they can become a part of the organization’s future activities.

  • Using online crowdfunding tools.

When most people think of crowdfunding they think of the services of websites that specialize in helping people raise money for different causes. These services can be a great way to quickly reach many people, as the organization’s social media network can rapidly spread the word about a campaign and the process of giving online is easy. It also can help an organization track donations and donor information. Nonprofits need to bear in mind that online services will require contracts and charge a fee of some kind—often a percentage of the total amount raised, but it can be structured in other ways.

  • Understand the compliance risk.

Crowdfunding raises a number of important compliance concerns for nonprofits. An important one is the potential need to comply with the rules governing charitable solicitations in donors’ home states. Because online platforms cross state lines, they can create obligations to register in states far from the nonprofit’s home base. Beyond solicitation, the fact that a third party is receiving a partial benefit from the fundraising campaign may require additional disclosures to regulators. Such disclosures might need to be made before a campaign begins, or in annual disclosure statements.

An experienced nonprofit attorney can help

The Church Law Center of California provides legal counsel to religious and secular nonprofits. We would be happy to help your organization understand what it needs to do to comply with legal requirements when it conducts crowdfunding campaigns. Call us today at (949) 689-0437 or through our contact page.

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