California Enacts First State Charitable Crowdfunding Laws

California has enacted what I believe is the first U.S. law specifically relating to crowdfunding for the benefit of charities. The legislation is A.B. 488, which the Governor signed on October 7, 2021 and that will be effective on January 1, 2023. I have been tracking developments in this area for an article that is currently in the editing process at the Indiana Law Journal.

Here is a summary of its key provisions from the Legislative Counsel's Digest:

This bill, beginning January 1, 2023, would establish that charitable fundraising platforms and platform charities are trustees for charitable purposes subject to the Attorney General’s supervision. The bill would define “charitable fundraising platform” to mean certain legal entities that use the internet to provide a website, service, or other platform to persons in this state, and perform, permit, or otherwise enable certain acts of solicitation to occur. A “platform charity” would be defined to mean a trustee or charitable corporation as defined under the act that facilitates described acts of solicitation on a charitable fundraising platform.

 

The bill would require a charitable fundraising platform, before soliciting, permitting, or otherwise enabling solicitations, to register with the Attorney General’s Registry of Charitable Trusts, under oath, on a form provided by the Attorney General. The bill would require persons or entities that meet the definition of a charitable fundraising platform and platform charity to register as a charitable fundraising platform. The bill would require annual renewal of registration. The bill would require the Attorney General to impose registration and renewal fees and deposit revenues in the Registry of Charitable Trusts Fund, for use as specified.

 

The bill would require a charitable fundraising platform to file annual reports, under oath, with the registry on a form provided by the Attorney General. The bill would restrict a charitable fundraising platform or platform charity to soliciting, permitting, or otherwise enabling solicitations, or receiving, controlling, or distributing funds from donations for recipient or other charitable organizations in good standing, as defined. The bill would require a charitable fundraising platform or platform charity that performs, permits, or otherwise enables specific acts of solicitation, before a person can complete a donation or select or change a recipient charitable organization, to provide prescribed conspicuous disclosures that prevent a likelihood of deception, confusion, or misunderstanding.

 

The bill would require a charitable fundraising platform or platform charity that solicits, permits, or otherwise enables solicitations to obtain the written consent of a recipient charitable organization before using its name in a solicitation, as prescribed. Written consent would not be required for certain acts of solicitation if specific requirements are met. The bill would require a charitable fundraising platform or platform charity, after donors contribute donations based on certain solicitations, to promptly provide a tax donation receipt in accordance with specified provisions. The bill would prohibit a charitable fundraising platform or platform charity from diverting or otherwise misusing the donations received through solicitation on the charitable fundraising platform, and require the entity to hold them in a separate account and to ensure donations and grants of recommended donations are sent promptly to recipient charitable organizations with an accounting of any fees imposed for processing the funds and in accordance with rules and regulations.

Law Firm Summaries: For Purpose Law Group; Perlman & Perlman; Greenberg Traurig (addressing effects on cause-related marketing).

Lloyd Mayer