An op-ed by Attorney Cynthia Katz as published on LinkedIn
Four things to keep in mind when raising money for charity
It is truly inspiring when businesses can collaborate in support of worthy causes. Nonetheless, these lofty ideals and efforts are not without risk. For-profits need to work within strict legal parameters when it comes to charity-driven fundraising. Here are some not-so-obvious things to keep in mind to keep your good intentions legal as well as helpful.
You might need a license. Many states require for-profit fundraisers to be registered with, or licensed by, the state. The rationale for this is to keep everyone accountable and enable state regulators and donors to find fundraisers who violate charitable solicitation laws. They protect donors, the public and charities themselves from fraud. Some states will require professional fundraisers to post bonds before working in the state. A quick call to your state attorney general’s office could tell you what is applicable though you might find calling your business manager or attorney to be a more practical answer.
Your paperwork needs to be in order. Most states require professional fundraisers to enter into written contracts with non-profits specifying the precise terms of the arrangement, and some states go so far as to regulate the terms of these agreements with respect to fees and revenue-sharing. This can often be as easy as calling the charity’s local office and having them email something on letterhead. The paperwork is really more to protect the non-profit yet it may minimize your exposure for non-compliance in the future.
No one likes a fraud. There are a host of laws and regulations designed to protect donors from fraud. This works not only to protect the people donating through you but also your organization as you pass along the funds. Let’s not forget that the non-profit will be protective of having its name or funds misused on their behalf. Make sure that the organization to which you’re donating money is actually using the funds appropriately by, contact the Federal Trade Commission and/or the Better Business Bureau.
What about the taxes?! Perhaps most importantly, the for-profit organization needs to be thoughtful about how it structures the charitable giving to avoid triggering any undesirable tax consequences for the non-profit. It can be frustrating and embarrassing to have to reallocate donated funds (or even pay out of pocket!) to taxes when a little forethought could have minimized tax obligations. Make sure you’re working with an attorney or accountant that is knowledgeable about your state’s individual tax laws regarding charitable donations.
About Cynthia Katz
Cynthia represents clients ranging from start-ups to large multinational companies. Her practice focuses on corporate and commercial transactions, including entity formations, equity and debt financing, mergers and acquisitions, intellectual property, data privacy and employment matters.
Prior to joining Savur Threadgold LLP, Cynthia worked for prominent midsize and boutique law firms in the New York area. She co-founded an online platform for angel investors and entrepreneurs, and she has been published by the International Association of Entertainment Lawyers and the SMU Science and Technology Law Review.
She is a graduate of the Wharton School at the University of Pennsylvania and Brooklyn Law School. She is licensed to practice law in the state of New York and is a member of the New York State Bar Association, the American Bar Association and the Wharton Club of New York.