Thirty-nine states (plus the District of Columbia) require non-exempt nonprofits to register with a state agency before soliciting charitable donations from state residents. This fundraising registration is done with the state agency that regulates charities, usually part of the state attorney general’s office, secretary of state, or a state consumer protection agency. All states require out-of-state (“foreign”) corporations, including nonprofit corporations, to qualify to do business with the state secretary of state (or similar official) before conducting various business activities in the state. Failure to qualify subjects the corporation to fines, penalties, and the inability to file lawsuits in the state’s courts.
So, here’s the crucial question: If your nonprofit solicits donations in a state is it also required to qualify to do business in that state? It depends.
Confused yet? Here’s a little background. Most nonprofits are legally organized as nonprofit corporations under the corporation law of a particular state--usually where the nonprofit has its main office. Legally speaking, a nonprofit corporation is a “domestic corporation” in its state of formation and a “foreign corporation” in all other states. For example, a nonprofit corporation formed in California is a domestic corporation in California and a foreign corporation in the other 49 states. “Foreign” in this context means a corporation formed out-of-state, not in a country other than the United States.
All 50 states have laws that require foreign corporations to register with the state before doing business there. This is commonly referred to as “qualifying to do business” in a state. Fortunately, in most states soliciting charitable donations, regardless of the method (for example, mail, phone, email, social media and online, charitable sales promotions, radio, television), does not by itself constitute doing business in a state. Therefore, corporate qualification is usually not required. However, there are exceptions.
A handful of states require foreign nonprofit corporations to qualify to do business simply because they solicit donations from state residents. These states consider registering to conduct charitable solicitations in the state sufficient in and of itself to constitute “doing business” in the state. These states include California, Colorado, the District of Columbia, Nevada, and North Dakota.
In the District of Columbia and North Dakota, qualification is a prerequisite to state fundraising registration. Michigan also requires qualification if your nonprofit is a parent organization that controls one or more local, county, or area chapters in Michigan and you want these chapters included in your solicitation license.
Of course, if your nonprofit does more than simply solicit donations from residents of a state—for example, it has an office or employees there, owns property there, or sells goods or services there—it will likely have to qualify to do business in that state.
Qualification is a relatively simple registration process that involves filing paperwork and paying fees—similar to the procedures and fees required for incorporating. The qualification fees vary from state to state. Some states have lower fees for nonprofit corporations than for-profit ones.
The procedures differ from state to state, but usually you must:
To learn the exact requirements and procedures of the state in which you need to qualify, visit the website of the state’s secretary of state or similar official. Links to all state secretary of state offices can be found at the National Association of Secretaries of State website. For guidance on all aspects of the state fundraising registration process, including links to all the forms you need to register, see Nonprofit Fundraising Registration: Nolo’s State-by-State Digital Guide (updated quarterly).