Nonprofits that want to expand beyond the borders of their home states can be surprised by the added complexity that can come from operating in other states. Although efforts have been underway for decades to harmonize laws governing things like nonprofit governance rules, fundraising, and so on, state laws still vary quite a lot. Before expanding operations into other states, nonprofits should be clear about what activities might trigger registration requirements in foreign jurisdictions.
“Doing business” in other states
Every legal entity that “does business” in a state needs to register with that state’s business regulator, typically the secretary of state. Doing business in a state also means that an entity can be sued in that state’s courts and is subject to the state’s taxation. A nonprofit may be exempt from some forms of state tax, but will need to examine this question on a case-by-case basis everywhere it operates. Failing to comply with out-of-state registration requirements can subject an organization to penalties.
Like a lot of legal concepts, the meaning of “doing business” is more complicated than one might assume. Opening an office, hiring employees who live or work in a state, or conducting a lot of activities in a state can trigger registration requirements. Generally speaking an organization is not required to register just because it has an isolated transaction in a state, or because its managers attend a conference there. Perhaps the most difficult trigger for registration obligations is if an organization routinely and purposefully directs activities toward another state.
Fundraising activities are regulated separately
Nonprofits naturally need to give special attention to state laws governing fundraising. Most states require some form of registration by nonprofits that regularly fundraise within their borders. Like the “doing business” rules, the triggers for registration vary from state to state. Most states have adopted a standardized process for registration, but understanding when registration is necessary is often the harder question.
The Church Law Center offers nonprofit governance counsel
The Church Law Center of California provides legal counsel to religious and secular nonprofits. Helping clients stay on top of their statutory obligations is just a small part of the kind of work we do. To find out how we can be of help to your organization, call us at (949) 689-0437 or reach out to us through our contact page.