If your nonprofit hires an outside professional fundraiser to solicit donations in a state, it will likely need to register with the agency that regulates charities in that state—typically the secretary of state or state attorney general. This may be the case even if your nonprofit is otherwise exempt from registering in the state involved. In most states, for example, very small nonprofits (typically, those with annual receipts under $25,000) are exempt from charitable solicitation registration. However, this exemption often ends and a small nonprofit must register when it engages the services of a professional fundraiser. The same holds true for membership organizations that are typically exempt from registration in most states. However, the requirements vary by state, requiring a careful review of the laws of the state involved.
There is a good deal of confusion about the terms used to describe outside fundraisers because they differ from state to state.
A professional fundraiser is any outside professional person or company hired by a nonprofit to help with fundraising. These are independent contractors who hire themselves out to nonprofits—they are not employees of their nonprofit clients. There are two basic types of professional fundraisers regulated by the states:
Depending on the state, professional solicitors may also be called paid solicitors, professional fundraisers, professional commercial fundraisers, professional fundraising firms, paid fundraisers, or commercial fundraisers. Whatever they are called, these people or companies are paid by nonprofits to solicit contributions directly from the public. This may be through telemarketing, door-to-door soliciting, event marketing, or any other type of direct solicitations.
Fundraising consultants are also called fundraising counsel (though they are not attorneys) or professional fundraisers. Unlike professional solicitors, fundraising consultants have no direct contact with the public. Instead, they help a nonprofit plan or manage a fundraising campaign. Direct marketing firms often fall into this category. An outside grant writer hired as an independent contractor to help write a grant request would also be a fundraising consultant.
Because they deal directly with the public and may obtain access to cash or personal credit card information, professional solicitors are regulated very closely by the states to guard against misrepresentations and fraud. Almost all states require professional solicitors to register or be licensed by a state agency. Solicitors may also be required to file annual financial reports with the state regarding charitable solicitation activities conducted during the preceding year. Most states have other rules governing solicitors’ activities, such as requiring them to disclose their identity as such before soliciting donations or having to disclose their fundraising expenses and ratios upon request. Most states also require professional solicitors to enter into written contracts with the nonprofits they work for and post a bond before commencing work in a state (generally $10,000 or $20,000). They are also subject to extensive record-keeping requirements.
Because fundraising consultants typically do not have direct contact with donors, they are not as strictly regulated as professional solicitors. However, a majority of states require fundraising consultants to register.
If your nonprofit hires an outside professional solicitor or fundraising consultant, you should always make sure it has complied with all of the legal requirements of the state or states where the funds will be raised. First, make sure the person or company is registered, if required. Although it is the solicitor’s or consultant’s obligation to register, in some states a nonprofit that hires an unregistered solicitor or consultant can be subject to fines or penalties.
Also, you should always have a written contract with a professional fundraiser. Most states will require you to include copies of all such contracts when you register or renew your registration. Failure to do so could result in your registration being rejected. The professional fundraiser will need to file copies of the contract with the state as well.
If your nonprofit is already registered in the state involved, hiring a professional fundraiser will either trigger the need to amend your registration or otherwise inform the state of this new fundraiser. If your nonprofit has not registered in the state, hiring a professional fundraiser to solicit donations there will likely require you to register there.
For a complete guide to the fundraising registration process, including information on how to do it own your own, refer to Nonprofit Fundraising Registration: Nolo’s State-by-State Digital Guide (updated quarterly).