Charitable Solicitation Registration vs. Foreign Business Registration

By Frank DeVito

Charitable Solicitation Registration vs. Foreign Business Registration

If your organization fundraises or conducts business in a state other than your home state of incorporation, you have probably heard that you may need to “register.” But what does that mean?

Generally, there are two kinds of registration in a foreign state. Each type of registration is triggered by different kinds of activity in the state and comes with different obligations. Read on to understand the difference between charitable solicitation registration and foreign business registration. This will equip you with the knowledge to understand when these two requirements may (or may not) apply to your organization.

Charitable Solicitation Registration

Most states have laws requiring nonprofit organizations to register before they can fundraise in the state. Each state’s laws will vary, but generally the registration requirement will be triggered if an organization either actively solicits donations or receives donations from donors within the state. While an occasional small donation from a donor in a state may not trigger the registration requirement, generally the act of soliciting or receiving donations from a state will require you to register.

Not sure which states your organization needs to register for charitable solicitation? Check out Napa Legal’s Charitable Registration Toolkit to learn more and make sure you are compliant in all the states where your organization fundraises.

Foreign Business Registration

This requirement might be called by different names in different states, but the basic concept is most states require your organization to take certain steps before it conducts business within the state, such as providing a certificate of good standing from the organization’s home state or completing an authorization form. In most states, these foreign business registration requirements apply to nonprofit organizations as well as for-profit organizations.

The most important thing you can learn here is that foreign business registration requirements – whether the state calls the requirement a foreign business registration, a foreign corporation registration, a certificate to conduct business, a certificate of authority, or something else – are not the same as charitable solicitation registration requirements.  

The foreign business registration requirement is slightly different in each state, but generally is triggered when your organization “conducts” or “transacts” business within a state.  

The definition of conducting or transacting business in a state varies. In fact, many states do not specifically define what counts as transacting business. But many states do include in their foreign business registration statutes a list of activities that do not count as transacting business. For example, many states will clarify that activities such as holding a board meeting within the state, maintaining a bank account within the state, or being a defendant in a lawsuit within the state do not count as transacting business.

Some states may specify that fundraising alone does not constitute “transacting business,” but that may not always be clear. If you are unsure whether fundraising alone triggers the requirement or whether your organization transacts business in a certain state, start by reviewing the Multi-State Compliance Matrix and reading the business registration law for that state. If you are still unsure whether this requirement applies to your organization, you may want to speak with an attorney.

What’s the Difference and Why Does It Matter?

By understanding that charitable solicitation registration and foreign business registration are two distinct concepts, you can help your organization in a couple important ways.

First, you can now make an informed decision about whether your organization’s activity in a certain state requires charitable solicitation registration, foreign business registration, or both. If your only contact with a state is some fundraising, many states will require charitable solicitation registration. But fundraising alone may not be considered “transacting business” that requires foreign business registration. If your organization does more than fundraise in a new state (for example, if you open a small physical office in a new state), this likely triggers foreign business registration requirements in that state. By understanding the difference, you can decide which registration laws may apply to you and which do not.

Second, understanding this distinction will help you differentiate your continuing compliance requirements. For example, in many states both charitable solicitation registration and foreign business registration require your organization to file some kind of periodic renewal. Often these will have different names – the business registration requirement is often an “annual report” and the charitable solicitation registration requirement can be called a “charitable registration renewal,” an “annual financial report,” or a number of other things.  

The important thing is to make sure you understand which renewal/reporting requirement goes with which registration. If your organization is only required to file a charitable solicitation registration in a state, you only need to file the renewal/report that goes with the charitable solicitation requirement, not the annual report that accompanies foreign business registration.

Conclusion

While the terminology and the requirements of charitable solicitation registration and foreign business registration are easy to confuse, it is important that you understand the difference. This will ensure that you are compliant with all required laws, but do not spend time trying to comply with laws that do not apply to your organization. This knowledge will help you to know which reports and renewals you are required to file to remain in compliance.