Hiring a Fundraiser – A Review of California Charitable Fundraising Laws

Thinking of hiring a fundraiser for your nonprofit? Your organization will want to make sure that the fundraiser is in compliance with California charitable fundraising laws. Here are answers to some frequently asked questions in this area.

Do these laws apply to my organization at all?

The California charitable fundraising laws, under the title “the Supervision of Trustees and Fundraisers for Charitable Purposes Act” (Gov’t Code Sec. 12580 et seq.), are targeted at fundraising activities for charitable purposes. So if your organization is a for-profit business or a nonprofit formed for public, rather than charitable, purposes (such as a business league, a labor union, or a political group), the laws may not be applicable to your fundraiser and proposed fundraising campaign.

What if my organization is fundraising outside of California?

The California laws focus on fundraising solicitations occurring in the state of California. If you are contemplating hiring a fundraiser to help solicit in New York or a grant writer to draft a proposal for a Florida foundation, the laws may not apply. Be careful however – those states may have comparable fundraising laws that your organization and the fundraiser will need to review. In addition, out-of-state charities using fundraisers to solicit in California should ensure compliance with these laws.

What types of fundraisers and fundraising activities are regulated under the laws?

The three principle fundraising entities governed by the California fundraising laws are (1) commercial fundraisers, (2) fundraising counsel and (3) commercial coventurers. A further description of these entities and the legal requirements applicable are below.

What is a commercial fundraiser?

Commercial fundraisers are the individuals or organizations that your nonprofit pays to go out and solicit funds on your behalf. They generally control the funds and then transfer them over to your accounts. Notably, nonprofit corporations organized for charitable purposes are excluded from the definition of a commercial fundraiser. So generally, if one nonprofit fundraises for another, it will not be subject to these rules. Other rules, such as the requirement of charities to register with the Attorney General, will still apply. The basic statutory definition of commercial fundraiser is below:

A commercial fundraiser for charitable purposes is defined as any individual, corporation, unincorporated association, or other legal entity who for compensation does ANY of the following:

  1. Solicits funds, assets, or property in this state for charitable purposes.

  2. As a result of a solicitation of funds, assets, or property in this state for charitable purposes, receives or controls the funds, assets, or property solicited for charitable purposes.

  3. Employs, procures, or engages any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes.” Gov’t Code Sec. 12599(a).

What are the basic legal requirements for a commercial fundraiser?

  1. Registration: Commercial fundraisers must register with the California Attorney General’s office prior to soliciting or controlling any charitable funds and must annually renew by January 15 of each year. The registration and renewal forms is the CT-1CF form. The fee is currently $350.

  2. Bond or cash deposit: A cash deposit or bond issued in the amount of $25,000 must be filed with the Attorney General registration and renewal forms. The bond can be in the form of a rider to a larger blanket liability bond. For a bond, the CT-4CF form must be used. In the case of a cash deposit, the CT-8CF and CT-9CF forms must be used.

  3. AG notification: Commercial fundraisers must file a notice with the California Attorney General not less than 10 working days before starting a solicitation campaign. The notice form is the CT-10CF form. There is an exception in the case of disasters and emergencies.

  4. Written contract requirement: Commercial fundraisers must have a written contract with the charitable organization for every solicitation campaign and event and the written contract must include specific statutorily prescribed provisions. A model contract drafted by the CA AG’s office is available here.

  5. Annual financial report:  Commercial fundraisers must file an annual financial report no later than January 30 of each year using form CT-2CF.

  6. Disclosure: Upon request from a solicited individual, commercial fundraisers must disclose to that individual the percentage of total expenses used for fundraising.

  7. Deposit of Funds: Commercial fundraisers must, within five working days, either deposit into a bank account controlled by the charitable organization or personally deliver all contributions received on its behalf.

  8. Document retention: Commercial fundraisers must keep specific records of each solicitation campaign for at least ten years.

What is fundraising counsel?

Fundraising counsel are your grant writers and fundraising consultants. They help your organization solicit funds, rather than soliciting funds themselves. Although the statutory definition is broad, there are a number of carve-outs to avoid regulating the one-time grant writer or the graphic designer that works on your website. In particular, if the fundraising consultant makes $25,000 or less in total gross compensation from fundraising activities in a year, he or she will be excluded from the definition of fundraising counsel. Printers and graphic designers are also excluded, as well as attorneys and bankers.  Here is the basic statutory definition:

Fundraising counsel for charitable purposes is defined as any individual, corporation, unincorporated association, or other legal entity who is described by ALL of the following:

  1. For compensation plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes.

  2. Does not solicit funds, assets, or property for charitable purposes.

  3. Does not receive or control funds, assets, or property solicited for charitable purposes in this state.

  4. Does not employ, procure, or engage any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes.” Gov’t Code Sec. 12599.1(a)

What are the basic legal requirements for fundraising counsel?

  1. Registration: Fundraising counsel must register with the California Attorney General’s office prior to providing counsel on solicitation for charitable purposes and must annually renew by January 15 of each year using form CT-3CF. The fee is currently $350.

  2. AG notification: Fundraising counsel must file a notice with the California Attorney General not less than 10 working days before starting fundraising counsel using form CT-11CF. There is an exception in the case of disasters and emergencies.

  3. Written contract requirement: Fundraising counsel must have a written contract with the charitable organization for each service performed and the written contract must include specific statutorily prescribed provisions. A model contract drafted by the CA AG’s office is available here.

  4. Annual report: Fundraising counsel must file an annual report listing charity clients and certifying the existence of statutorily-sufficient written contracts covering the services provided for each client. Filing the annual registration renewal form CT-3CF satisfies this reporting requirement. 

What is a commercial coventurer?

A commercial coventurer is a for-profit business that your organization partners with to raise funds while promoting the business’ products and services. As an example, if a consumer buys a Product (RED) shirt from the Gap, a certain percentage of profit from the sale is donated to The Global Fund to Fight AIDS, Tuberculosis and Malaria. The for-profit increases sales through this “cause marketing” strategy and the nonprofit increases donations and visibility. The statutory definition is as follows:

Commercial coventurer is defined as any person who, for profit, is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds, assets, or property for charitable organizations or charitable purposes, and who represents to the public that the purchase or use of any goods, services, entertainment, or any other thing of value will benefit a charitable organization or will be used for a charitable purpose.” Gov’t Code Sec. 12599.2(a).

What are the basic legal requirements for a commercial coventurer?

Commercial coventurers have alternative requirements. They are NOT required to register with the California Attorney General so long as they do the following:

  • Have a written contract signed by two officers of the charity prior to representing to the public that purchase or use of anything of value will benefit the charity or be used for a charitable purpose;

  • Transfer to the charity all assets received through the cause marketing campaign within 90 days of its kick-off and at each 90 day interval thereafter; and

  • Provide a written accounting to the charity of assets received through the cause marketing campaign, in conjunction with the transfers made, so that the charity can make sure that the coventurer has been accurately representing the campaign to the public and can complete its own registration requirement with the Attorney General.

If they do not meet the above requirements, the coventurer must REGISTER with the Attorney General on form CT-5CF and must annually REPORT to the Attorney General on form CT-6CF.

What are my responsibilities as a charity partnering with others to help fundraise?

The first thing that your organization should recognize is that the California fundraising laws mainly focus on compliance by the fundraiser or coventurer, not the organization, and that they are meant to protect the charity and the public from fundraising scams. They are not meant to frustrate charities by making them sort through complicated laws to make sure they comply (although this is a side effect).

That said, the law requires that charitable organizations “establish and exercise control” over fundraising activities conducted for its benefit, including approval of all written fundraising agreements, and must ensure that fundraising activities are conducted without coercion of potential donors. Charitable organizations are prohibited from entering into contracts with commercial fundraisers or fundraising counsel that are not properly registered with the California Attorney General or have not agreed to do so prior to solicitation and these contracts are voidable by the charity under certain circumstances. And of course, charitable organizations themselves must be registered with the Attorney General if they hold or intend to receive assets for charitable purposes first on form CT-1 and annually thereafter on form RRF-1.

 

Where can I find more resources to help me understand these laws?

 

 

Written by: Cameron Holland