Beginning on January 1, 2016, a “commercial fundraiser” in California is defined as any individual, corporation, unincorporated association, or other legal entity who for compensation does any of the following:

1. Solicits funds, assets, or property in this state for charitable purposes.
2. As a result of a solicitation of funds, assets, or property in this state for charitable purposes, receives or controls the funds, assets, or property solicited for charitable purposes.
3. Employs, procures, or engages any compensated person to solicit, receive, or control funds, assets, or property for charitable purposes.
4. Plans, manages, advises, counsels, consults, or prepares material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, but is disqualified as a fundraising counsel for charitable purposes pursuant to subdivision (a) of Section 12599.1.

It’s the fourth activity (described in red font above) that newly creates another category of commercial fundraiser. Planning, managing, advising, counseling, consulting or preparing materials for, or with respect to, charitable solicitations, in and of themselves, are activities that are generally associated with another regulated fundraising position known as fundraising counsel. But such activities can lead a professional fundraiser to fall within the definition of a commercial fundraiser if:

• the professional fundraiser is compensated as a percentage of the funds, assets, or property received as a result of a solicitation campaign rather than as a flat fee; or
• the professional fundraiser receives or controls the funds, assets, or property received as a result of a solicitation campaign, including indirectly by:
  • the right to approve or veto any payment from an escrow account to which such funds are subject;
  • maintenance of an interest in an account into which solicited funds are deposited;
  • the right to access such funds, assets, or property held by a caging company (a business that receives contributions, processes donor mail, and deposits all contributions to an account under the sole control of the charitable organization);
  • any ownership or management interest in any other entity that receives or controls the funds, assets, or property solicited for charitable purposes, including, but not limited to, an escrow agent or caging company, but not including any federally insured financial institution; and
  • receipt of any financial benefit, directly or indirectly, from any other individual or entity that receives or controls the funds, assets, or property solicited for charitable purposes, other than the trustee or charitable corporation soliciting the funds, assets, or property for charitable purposes.

The purpose behind this change in the definition (as part of AB 556) is to close a loophole that some professional fundraisers used to avoid the more rigorous disclosure requirements to which commercial fundraisers are subject:

1. Commercial fundraisers must disclose to donors that the solicitation is being conducted by a commercial fundraiser and must identify themselves by the name under which they are registered with the Attorney General.
2. Commercial fundraisers must disclose the percentage of total fundraising expenses of the fundraiser (the ratio of the total expenses of the fundraiser to the total revenue received by the fundraiser for the charitable purpose for which funds are being solicited) upon receiving a written or oral request from a person solicited.

Principal Registration and Reporting Requirements

Commercial fundraisers in California are also subject to several registration and reporting requirements, including:

Form CT-1CF (Annual Registration Form)
For use by commercial fundraisers prior to soliciting any funds in California for charitable purposes.

Form CT-2CF (Annual Financial Report – Commercial Fundraisers)
Disclosure reporting form for use by every commercial fundraiser to report funds or assets received as a result of a solicitation for charitable purposes.

Form CT-10CF Form (Notice of Intent To Solicit For Charitable Purposes – Commercial Fundraiser)
For use by commercial fundraisers for charitable purposes to provide 10 working days’ notice prior to the commencement of each solicitation campaign, event, or service, in accordance with Govt. Code sec. 12599(h).

See Office of the Attorney General site for Forms and Instructions.

Not Commercial Fundraisers

The following persons or entities are explicitly not commercial fundraisers:

• any trustee holding property in trust pursuant to any charitable trust, or any of such trustee’s employees;
• any charitable nonprofit corporation or any employee of such nonprofit corporation;
• any employee of a commercial fundraiser;
• any federally insured financial institution that holds, as a depository, funds received as a result of a solicitation for charitable purposes; or
• any escrow agent or caging company that receives or controls funds received as a result of a solicitation for charitable purposes.

Characterization by the Office of the Attorney General

Presumably, in large part due to the efforts of some commercial fundraisers to hide or misrepresent the amounts they raise that ultimately go to the targeted charities, the Office of the Attorney General has included some cautionary statements on its webpage describing commercial fundraisers:

Historically, use of a commercial fundraiser has meant higher costs for a charity. Most of the charities registered with the Registry of Charitable Trusts do not employ commercial fundraisers to solicit donations on their behalf. Historical figures show that a campaign conducted by a commercial fundraiser returns to charity, on average, less than 50 percent of the contributions it raises on a charity’s behalf. The remainder is retained by the commercial fundraiser as a fundraising fee and for reimbursement of expenses.

Legal Compliance

With the heightened scrutiny of commercial fundraising practices, it is more important then ever for commercial fundraisers to operate in full compliance with applicable laws. Here are a few tips for commercial fundraisers beyond the registration and reporting requirements:

• It must enter into a written contract with a charity for each solicitation campaign, event, or service. Such contract must be available for inspection by the Attorney General and contain all of the provisions required under Gov. Code Sec. 12599(i).
• It must provide to the charity the right to cancel the contract without cost, penalty, or liability for a period  of 10 days following the date on which the contract is executed, and the right to terminate the contract at any time with or without cause upon 30 days’ written notice.
• It must only contract with a charity that is actively registered with the Attorney General’s Registry of Charitable Trusts or agrees to register prior to the commencement of any solicitation.
• It must provide to the Registry of Charitable Trusts with each application for registration and registration renewal a cash deposit or bond in the amount of $25,000 for the benefit of any person damaged as a result of malfeasance or misfeasance in the conduct of the commercial fundraiser regulated activities.
• It shall not misrepresent (including through the failure to disclose a material fact) the purpose of the charity or the nature or purpose or beneficiary of a solicitation.
• It shall ensure that charity knows that the charity must establish and exercise control over its fundraising activities conducted for its benefit, including approval of all written contracts and agreements, and must ensure that fundraising activities are conducted without coercion.