Online Fundraising Compliance: What You Need to Know

Nonprofit compliance and online fundraising are two key operational areas that probably take up a lot of your organization's bandwidth. After all, compliance keeps things running smoothly, and online fundraising likely represents a sizable portion of the incoming revenue that keeps your mission growing year to year. Together, they help ensure that yours is a healthy, organized nonprofit well-positioned to drive impact in the community.

But how do the areas of nonprofit compliance and online fundraising intersect? If you’ve never looked into it before, you might be surprised to learn that online fundraising compliance is a serious gray area with tons of uncertainties.

In this quick guide, we’ll outline the essentials that your nonprofit and leadership need to know about online fundraising compliance and provide the most important steps you can take to protect your mission.

The Complexities of Online Fundraising Compliance

First, let’s briefly review a foundational nonprofit compliance process that becomes complicated in online fundraising contexts: charitable solicitation registration, also known as fundraising registration.

This process involves registering your nonprofit with the governments of U.S. states in which you conduct fundraising activities and solicit donations. It’s a regulatory measure intended to protect each state’s residents from fraudulent charities. Registration requirements can also vary greatly between states, so the landscape is a bit complex, to begin with. Labyrinth’s guide to fundraising registration covers this topic in greater depth.

But why does online fundraising complicate the registration process? There’s one critical word in the paragraph above that you might’ve missed—residents.

In most cases, the need to register to fundraise with a state is triggered by receiving a donation from a donor who lives in that state. When you fundraise online, you have the opportunity to grow your mission by reaching donors from across the country and the world. Plan an amazing campaign, and you might just receive donations from every state. Do you need to register in all 50 states? What are the rules and risks you face in this situation?

The Current Landscape

Unfortunately, there’s a lack of consistent regulations covering the gray area of online fundraising registration. In most states, there are no laws that specifically address online fundraising or lay out regulations for online fundraising registration.

The result? Incoherent and confusing regulations for your nonprofit, the possibility of compliance lapses and risks, and all kinds of new opportunities for donor fraud to occur.

So What Can You Do to Stay Compliant?

First, ensure that your nonprofit registers and renews your registrations as needed in states where you conduct on-the-ground fundraising or where you know many of your supporters reside. Understand your unique set of registration requirements and stay on top of any state-level developments that may impact the registration process over time. Keep your compliance records clean and well organized for future reference.

But what if your nonprofit has a wide reach online or is planning to ramp up its online fundraising efforts at a national level? Since the current regulatory framework is incoherent and nonexistent in many places, the only way to ensure comprehensive, watertight compliance is to register your nonprofit in all states where you expect to receive donations.

The challenge with this approach is that it’s simply infeasible for most organizations. That’s because registrations and renewals have fees, and the time required to prepare the necessary documentation can easily become prohibitive, especially when done for multiple states. Instead, you should take steps to mitigate your compliance risks. Here are some common strategies that nonprofits use:

• Register your nonprofit in the most populous states, like California, Texas, Florida, and New York. In terms of pure statistics, this approach can give your national online fundraising campaigns a layer of blanket compliance.
• Include disclosures on your online fundraising pages that explain that you’re unable to accept donations from jurisdictions other than those in which you’re registered. This can help minimize your liability should issues arise around donations received from excluded jurisdictions.
• Consult with compliance professionals to lay out a customized coverage plan. Nonprofit registration and compliance consultants can offer expert guidance to help you navigate both the offline and online landscapes. Services can also provide on-the-ground registered agents depending on your needs.

The world of nonprofit compliance is constantly changing and, in many cases, lagging behind the lived reality of organizations that are fundraising and engaging with donors in new ways.

But despite the obscurity of online fundraising, navigating these challenges isn’t an impossible task—you’re likely already doing it. The key, however, is being aware that online fundraising does pose unique compliance challenges in the first place. From there, you’ll be able to proactively plan for ways to safeguard your mission as you continue reaching new donors.

This blog is an original work of the attributed author and is shared with permission via Foundant Technologies' website for informative purposes only as part of our educational content in the philanthropic sector. The views, thoughts, and opinions expressed in this text belong solely to the author and do not necessarily reflect Foundant's stance on this topic. If you have questions or comments, please reach out to our team.