Attention Non-Profits (and Social Enterprises): Are Your Charitable Registrations in Order?
The executive director of a national charity contacted our office with a question about charitable registrations. She served on the board of a non-profit corporation called “Socks for Everyone,” and her board actively solicited charitable contributions in every state. She explained that Socks had filed for authorization to do business in every state, but had registered to solicit only in Illinois—its state of incorporation. She had been informed that Socks did not need to register in the other 49 states since it was already authorized to do business in all of them.
“Why is Socks authorized to do business in every state,” I thought to myself. So I probed further, “Does Socks have offices, facilities, or warehouses in the other 49 states? Does it send representatives out of state often? Any out of state bank accounts?” She answered “No” to all of my questions.
After pondering her situation, I delivered the bad news: “Socks needed authority to do business in only one state, its state of incorporation, but it needs to register to solicit in all fifty states. In fact, Socks should file to withdraw from doing business in 49 states to avoid the annual administrative filing costs.”
Our hypothetical illustrates the dilemma in which many non-profits and social enterprises find themselves. This article discusses the factors non-profits and social enterprises should consider when determining whether to apply for authority to do business, charitable registration, or both, using Illinois as a case study.
Registering as a Charity to Solicit Donations
Registration requirements vary slightly from state to state. In Illinois, two separate laws provide the legal framework for understanding Illinois registration requirements.
- The Illinois Solicitation for Charity Act states that “[a]ny charitable organization which solicits in Illinois must first register with the Attorney General.”
- The Illinois Charitable Trust Act requires that trustees holding property for charitable purposes must also register with the Illinois Attorney General. The Act broadly defines a trustee as “any person, individual, group of individuals, association, corporation, not-for-profit corporation, estate representative, or other legal entity holding property for or solicited for any charitable purpose.”
Many non-profits and social enterprises mistakenly believe they need to register only if they’re actively soliciting; however, holding property for charitable purposes also triggers the registration requirement. Thus, if Socks for Everyone wants to solicit in a neighboring state by sending solicitation letters, making phone calls, or frequently traveling to the state for business purposes, it must register with that state’s attorney general. Socks will also need to register even if it has no plans to solicit and merely intends to open a bank account in the state.
After registering, an organization must submit an annual financial report to the attorney general of that state. Many state statutes exempt from the annual filing requirement religious organizations that are “incorporated or established for religious purposes,” including organizations that are “affiliated with, operated by, or supervised or controlled by” a religious organization. This means that churches, temples, and other houses of worship are not the only organizations that may qualify for an exemption.
In the example used above, imagine that a church incorporated Socks for Everyone in Illinois as a 501(c)(3) charity with the purpose of “distributing socks and other clothing to impoverished individuals as a means of proclaiming the gospel of Jesus Christ.” Members of the church serve on Socks’ board of directors, and the church’s minister preaches at Socks’ events. Although Socks for Everyone is not a church, it may still qualify for an exemption from the annual filing requirement.
Authority to Do Business
Authority to do business is an entirely different matter, although it’s commonly confused with charitable registration. Like charitable registration, authority to do business registration requirements vary by state. In most states, “doing business” is defined in the negative. Meaning, the statute specifically states what doing business is not. The following are a few examples that fall outside the scope of doing business in Illinois:
- Maintaining bank accounts;
- Selling through independent contractors;
- Owning real or personal property; or
- Conducting an isolated transaction that is completed within 120 days and that is not one in the course of repeated transactions of a like nature.
Because other states typically follow this pattern, this explains why Socks for Everyone did not need to register for authority to do business in every state. Even if it maintained a bank account, it did not engage in any other activities in the state. As the list above indicates, even occasional sales through independent contractors would not trigger the need to apply for authority to do business. However, some situations do not fit neatly within the categories laid out in the statute. In these cases, non-profits should seek the guidance of legal counsel.
This is a good time to evaluate your organization’s registrations and make sure they’re up to date. Keep in mind that the registration process can be tedious and expensive, which highlights the importance of not registering in a state unless required to do so by statute. An attorney who is familiar with multistate registrations can advise you of the necessity of registering in a particular state. You should also assess where your non-profit or social enterprise is authorized to do business and ask yourself whether all its registrations are necessary.
This article is provided for general information and should not be relied upon as legal advice for a specific situation. If you are in need of specific advice or legal representation, please do not hesitate to contact us.
©2015 Bea & VandenBerk
 “Socks for Everyone” is a fictional organization created for the purpose of this article.
 Pay close attention to each state’s statute(s) for state-specific registration requirements.
 225 ILCS 460/2(a).
 760 ILCS 55/5(a). This Act applies to trustees holding property worth more than $4,000.
 760 ILCS 55/3.
 805 ILCS 5/13.75. Consult the statute for a complete list of what falls outside the realm of “doing business” in Illinois.