Legalities of Fund raising in the USA

Alternative fund raising banners – presentatio...
Alternative fund raising banners – presentation sheet (Photo credit: Wikipedia)

Following my previous post, on the Jodi Arias Appeal Trust Fund, I have been doing some research regarding non-profit fund raising in the USA and find that 40 states require registration before any type of solicitation (e.g. email, advertising, internet etc) for contributions from the public can be made by an organisation set up for the purpose. If an organisation that is required to register doesn’t, then it faces potential intrusion from the IRS and may well have problems with donors. Not only that but the organisation will be breaking the law, leaving itself open to prosecution and fines. Registration can be costly if an organisation needs to employ a professional such as an attorney because it does not have the internal knowledge to do it itself. In some states some organisations may be exempt but they would have to make application for exemption as it is not automatic. Furthermore an organisation could face criminal charges for fraud if any of the fundraising activities are misleading.

It is easy to overlook the costs involved in managing a fund raising campaign and it would not surprise me in the least if many worthy causes fail because the costs are greater than the amount of funds raised. Where a trust is established it is likely that professional trustees and/or administrators will be appointed, such as attorneys. It would be unusual for them to work for free so their fees together with establishment costs would mean the organisation would be in debt before a cent is raised. Then add to that the many social events that are associated with fund raising, such as dinners, auctions, raffles, walks etc. Plus the campaigns to attract high-profile public figures and celebrities which all have a cost factor.

Success is rarely acheived on any scale without a huge marketing drive. So the establishment of a trust fund to raise public money would need to be planned out very carefully before the initial appeal for funds is launched and so compliance is critically important for both the organisation and the donors. Twelve states require organisations to make a disclosure when dealing with donors that they have complied with state registration laws. I would expect any reputable fund raising organisation to do this in any event as a matter of course to build trust and encouragement to potential donors. Any organisation that fails to register should be prepared to state the reasons why it has not done so otherwise it can expect to be considered dubious and is unlikely to attract a meaningful number of donors. Public trust and confidence will only be strengthened if transparency and sufficient information are provided to enable the public to make an informed decision whether or not to contribute.

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2 thoughts on “Legalities of Fund raising in the USA”

  1. Very interesting research, James. While an “irrevocable trust” can be a sound, protective measure, the emphasis on such seems to be putting the cart before the horse. Plus, at least to me, it gives the impression that the fear of what the Alexanders might win in a civil case is greater than their believe in Jodi’s need and legal right to collect donations for her appeal. It’s an unfortunate, but not fatal, public relations blunder, as I see it. However, I have also never believed any attorney worth his or her salt would take this case for a retainer, but would take it either gratis or for some type of future payment. Hopefully, the court is going to allow her to drop Nurmi, which I think is an excellent move. Jodi’s motion makes me believe she is very rational and very determined. I was glad to see it. Thanks for the research, James. I believe Jodi’s collective voices of support are getting stronger and stronger, no matter the differences in how that “support” is stated at times. She needs all of them. And so do others who have and will stand to suffer such egregious injustice in the future.

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    1. Thank you Sandra. As usual, from you, very measured and reasoned comments. I am not sure why the Alexanders would bring a civil action that could cost them $$$$’s. JA is bankrupt therefore could offer no defence. They win and get nothing. PR blunder – definitely. I have always believed Nurmi to be insipid and less than convincing. I wouldn’t want him defending me that’s for sure. regards James.

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