DELAWARE FUNDRAISING REGISTRATION AND REGULATION Steptoe & Johnson LLP (Overview) David Roll

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1 Last Updated: July 2014 DELAWARE FUNDRAISING REGISTRATION AND REGULATION Steptoe & Johnson LLP (Overview) David Roll Richards, Layton & Finger, P.A. (Delaware) C. Malcolm Cochran, IV, Melanie George Smith, and Anthony Flynn, Jr. Table of Contents 1. Overview 2. Delaware Charitable Solicitation Laws 3. Resources 1. Overview To protect residents, legitimate charitable organizations, and the charitable community, most states have laws requiring 501(c)(3) charitable organizations that solicit contributions from the public, including those in the social sector, to register and file periodic reports. The states that do not regulate these organizations are: Vermont, Indiana, Iowa, South Dakota, Nebraska, Texas (with limited exceptions), Wyoming, Montana, Idaho, Nevada, and Delaware. Although specifics vary, the 39 states and the District of Columbia that regulate charitable fundraising generally require covered organizations to register with a state agency before soliciting the state s residents for contributions. Most of the state fundraising statutes exempt certain organizations from their registration and filing requirements. For example, in Pennsylvania, charitable organizations receiving annual contributions of $25,000 or less are exempt from the state registration requirements as long as they do not compensate anyone to conduct solicitations. In addition, bona fide religious organizations, hospitals, educational institutions, firefighters, and numerous other types of organizations are exempt from the Pennsylvania law. The information that must be submitted in or attached to the state registration forms varies from state to state. Many states accept a copy of IRS Form 990 in place of some or all of the required financial reports. In addition, other documents, such as articles of incorporation and bylaws, typically are required to be submitted. All information submitted in the registration reports is generally made available to the public.

2 In addition to registration, the states that regulate charitable fundraising generally require covered organizations to file periodic financial reports. In Pennsylvania, for example, covered organizations are required each year to file reviewed financial statements if their gross contributions exceed $25,000 per year and audited financial statements if their gross contributions exceed $100,000 per year. To determine specific registration and filing requirements, social sector charitable organizations that are engaged in or about to engage in fundraising should consult these guides, experienced counsel, and the agencies in the states in which the organization expects to be doing business. Doing business in a particular state may include any of the following: (1) soliciting contributions by mail, phone or otherwise from individuals, businesses, or other charities located in the state; (2) conducting mission-based programs; (3) employing individuals; (4) maintaining a checking account; or (5) owning or renting property. In some states, local governments or municipalities may also require organizations soliciting charitable contributions to register and file periodic reports. These local regulations are beyond the scope of these guides. Many states, including some that do not require charities to register and report, regulate fundraising activity by professional solicitors and fundraising counsel. These regulations are also beyond the scope of these guides. a. Unified Registration Statement The Unified Registration Statement (URS) is an alternative to filing separate registration forms in cases where covered charitable organizations are soliciting contributions in multiple states. Thus, the URS proves most useful to nonprofits soliciting regionally or nationally and, are therefore, subject to the registration laws of multiple states. The form is an ongoing project of the National Association of Attorneys General (NAAG) and the National Association of State Charities Officials (NASCO), in collaboration with the Multi-State Filer Project, Inc. (MFP). All states that require covered charitable organizations to register will accept the URS in lieu of their own registration form except for the states of Colorado, Florida, and Oklahoma. The states that accept the URS form, however, continue to require annual filing of financial information or some other type of financial report. In addition, the following states also require the filing of supplemental forms and/or information in addition to the URS: Arkansas, California, Georgia, Maine, Minnesota, Mississippi, North Carolina, North Dakota, Tennessee, Utah, Washington, West Virginia, Wisconsin, and the District of Columbia. Massachusetts accepts the URS for initial registration only. 2

3 The URS can be downloaded by following the instructions at This website contains helpful information about registration requirements and an up-to-date list of which states accept the URS. b. Fundraising Via the Internet and the Charleston Principles Most of the state statutes that require registration apply to internet solicitations that reach residents of the state. However, minimum contacts with the state and the practicality of applying these statutes to activities beyond more traditional fundraising techniques (e.g., telephone, direct mail, in-person solicitations) raise a number of issues that have troubled and perplexed state charity officials. Therefore, the National Association of Attorneys General/National Association of State Charity Officials have published the Charleston Principles that provide guidelines to states as to when internet solicitations by otherwise covered charities should be required to register. The Charleston Principles are guidelines only; they are not binding on the states and may change as laws change. Under the Charleston Principles, a charitable organization that has its principal place of business in the state (and is thus domiciled in the state) and uses the internet to solicit contributions in that state must register in that state. If the organization is not domiciled in a state, it still must register if it (1) specifically targets persons in the state or receives contributions from persons in the state on a repeated and ongoing or substantial basis through or in response to website solicitations or (2) its non-internet activities alone would require registration in the state (e.g., direct mail or telephone solicitation into the state). The foregoing is a summary only. For more information on the Charleston Principles, including a complete copy with annotations, see It is strongly recommended that social sector charitable organizations intending to solicit contributions via the internet should seek the advice of experienced counsel concerning registration under one or more of the state fundraising laws. c. Prohibited Conduct Most states have statutes that prohibit a variety of false, misleading, unfair, and/or deceptive practices in connection with charitable fundraising. For example, states typically prohibit organizations from making statements that funds are being solicited for a charity or will be used for charitable purposes when such is not the case. These statutes authorize state attorneys general to prosecute violations and courts may impose monetary fines and, in some cases, criminal penalties. 2. Delaware Charitable Solicitation Laws The Delaware Charitable/Fraternal Solicitation Act of 1996, 6 Del. C et seq., regulates fundraising in Delaware. There is no registration requirement in Delaware, and no annual 3

4 reports are required to be filed in order to solicit charitable contributions in the state, with an exception for foreign corporations. As such, the Charleston Principles do not apply in Delaware. However, foreign corporations (i.e., corporations that are incorporated outside of Delaware) that want to fundraise in Delaware are subject to certain requirements. In order to fundraise in Delaware, foreign corporations must: (1) appoint a Delaware registered agent; (2) file a statement with the Delaware Secretary of State that includes the name and address of its Delaware registered agent, its assets and liabilities, the business or fundraising it wants to do in Delaware, and an acknowledgment that it is still a valid corporation in its home state; and (3) file annual reports with the Delaware Secretary of State that include up-to-date information regarding its registered agent, headquarters, directors and officers, and stock. 8 Del. C. 371, et seq.; Del. Const. art. IX, 5. Under current law, Delaware prohibits any individual or company from deceiving anybody in connection with a charitable solicitation. The following is a list of prohibited practices, which the Attorney General has the authority to enforce: a. Not identifying yourself by name prior to making the charitable solicitation; b. Not identifying the charitable or fraternal organization for which you are soliciting; c. Failing to disclose that a solicitation is being made by a professional solicitor; d. When asked, failing to disclose the amount of the contribution that will be actually given to the charitable or fraternal organization; e. Using the terms police or firefighter or similar language unless the person making the solicitation is an actual police officer or firefighter; f. Saying that a percentage of the contribution will be used for a charitable/fraternal purpose if the person soliciting believes it will not; g. Saying that another person has endorsed the solicitation unless that person has consented in writing to use of their name; h. Saying that the contribution is being solicited on behalf of anyone other than the charitable organization; i. Using any charitable or fraternal organization s name without their written consent; j. Using a name, symbol, or statement that is closely related to one used by a charitable or fraternal organization that the use would confuse or mislead the public; k. Failing to maintain records and written contracts required by Delaware law; and 4

5 l. Soliciting contributions between 9pm and 8am on three separate occasions, unless authorized by the person being solicited. 6 Del. C A professional solicitor is required to keep financial records regarding its charitable and fraternal solicitations in Delaware. 6 Del. C A professional solicitor is a person who is paid to solicit contributions for a charitable or fraternal organization. It does not include the charitable or fraternal organization itself, nor any officer, director, employee, member, or volunteer of the organization. Id. A professional solicitor must also keep a written contract between the professional solicitor and the charitable or fraternal organization that sets forth the obligations and payment terms. 6 Del. C The professional solicitor must keep the financial records and the written contracts for at least three years from the end of the contract. Id. Delaware has also enacted the Delaware Telemarketing Fraud Act: 6 Del. C. 2501A, et seq. This Act regulates telemarketing in Delaware. However, the use of telephones or telemarketing on behalf of a charitable or fraternal organization in connection with their charitable or fraternal solicitations is generally exempt from this law, provided that certain corporations are not exempt. 6 Del. C. 2505A. This Act does require registration with the Department of Justice for those corporations that are not exempt. 5

6 3. Resources Delaware Attorney General s Office: Delaware Department of Finance: Division of Revenue: Annual Survey of State Laws Regulating Charitable Solicitations as of January 1, Giving USA Spotlight Issue1, 2014: Spotlight-2014-Issue-1.pdf National Association of State Charity Officials: Multistate Filing, The Unified Registration Statement: American Institute of Philanthropy: BBB Wisegiving Alliance: Charity Navigator: GuideStar: Association of Fundraising Professionals: National Center for Charitable Statistics: 6