Solicitation and Fund-raising by Amateur Sports Clubs

We have recently discovered that some of our amateur sports club clients have failed to obtain a charitable solicitation license and/or have hired unlicensed fund-raisers to solicit contributions. If your amateur sports club is in this situation, then this Alert is for you.

Each state has some kind of charitable organization solicitations act, which requires a charity (any §501(c)(3) organization) to obtain a solicitation license from the state Attorney General or other state office if it solicits or receives contributions in excess of a certain amount (usually between $5,000 - $10,000 per year). A license is also usually required if a charity compensates anyone for fund-raising services, including employees or independent contractors.

Solicitation laws also require professional fund-raisers to be licensed and bonded before engaging in solicitation on behalf of a charity, including an amateur sports club.

While these laws contain exemptions for religious organizations, hospitals, schools, and certain other groups, we are aware of no state exemptions for a charitable amateur sports club. Failure to obtain a charitable solicitation license and/or to hire unlicensed fund-raisers by an amateur sports club is a breach of fiduciary duty which may expose officers and directors to the state investigation and may also be a misdemeanor. Additionally, the state Attorney General is usually empowered to bring an action in court to dissolve the non-complying charitable sports club corporation.

What should amateur sports clubs do? We recommend the following steps:

1. Make certain your club is incorporated as a nonprofit corporation.

2. Review the IRS determination letter that determined your amateur sports club to be a tax-exempt organization. Note: non-§501(c)(3) organizations may be tax-exempt, but since they are not charities, need not comply with charitable solicitation laws.

3. Obtain a determination from your state's Attorney General whether your amateur sports club must register as a charity and/or obtain a license to solicit or receive contributions from the public.

4. If your amateur sports club has raised contributions in excess of the threshold amount or if you've compensated someone for fund-raising services, and you haven't registered with the Attorney General's Office - don't panic. We're experienced in handling such matters, and we can help you.