In October 2021, California became the first state to regulate fundraising platforms used by charities. These platforms are used by charities to support their cause through monetary donations and other activities. These platforms existed without the full regulation of California’s fundraising laws.
As business lawyers in Los Angeles, the professionals at The Hakim Law Group want the public and charitable organizations to be aware of the new regulations coming into effect on January 1, 2023, for platforms and charities. This blog will give an overview of Assembly Bill 488 and its focus to protect the public and charity organizations.
Assembly Bill 488
Crowdfunding for charitable organizations has become popular for its ease in promoting philanthropy. Fundraising for a charitable cause or the “round up” program where charities receive the added cents on purchases to round up to the nearest dollar is fun and ubiquitous. AB 488 is the effort of California’s charity regulators to establish regulations to protect donors and charities from deceptive practices, misrepresentation, and fraud.
The law will become effective on January 1, 2023. The issues addressed will be providing clarity in the definitions of charitable crowdfunding platforms and platform charities. The regulations will provide enhanced reporting, registration, and distribution requirements to the receiving organizations.
The legislation will define platform charities and charitable fundraising platforms. Below are the definitions and examples of these new categories.
Platform charities are the charitable corporations or trustees facilitating the solicitation acts on a charitable fundraising platform. The functions and actions of these charities are the following:
- soliciting of donations from platform users with an express or implied representation that the platform may grant donations to other charitable organizations; and
- granting donations to other organizations on the platform based on purchases or other user activity.
Charitable Fundraising Platforms
These platforms are defined as any person, unincorporated association, corporation, or legal entity supporting a website or service to the residents of California. These persons and entities perform and permit the solicitation acts to occur. These are platforms that:
- name or list the specific charities to receive the grants or donations made by the platform users;
- allow a platform user to solicit donations to a charitable organization through peer-to-peer fundraising;
- allow the platform user to select the charity to receive donations;
- name and list the specific charities to receive donations through user purchases or other activity; and
- provide the capabilities to the charitable organizations to customize websites, software, and other platforms to solicit and receive donations.
The law will specifically exempt charities that fundraise on their platform and advisors of donor-advised funds with platform services.
The New Requirements
On January 1, 2023, the charitable fundraising platforms and the platform charities must comply with the new requirements for registration, reporting, and disclosure.
These platforms and charities must register with, and report annually to, the Registry of Charitable Trusts. The platforms and organizations must be in good standing with the IRS and California’s Franchise Tax Board. The platform donors must be advised of any fees deducted from their donations and the identifying party receiving the net donation. Charities must give written consent to be featured on the platform, and all donated funds must be held in separate accounts to ensure proper and prompt distribution.
The legal team at The Hakim Law Group applauds the California legislature for regulating charitable crowdfunding for the protection of donors and charities. We are hopeful that other states will follow California’s lead on promoting the philanthropic tendencies of the public and regulating these activities in a business-like manner.
If You have Questions or Need Professional Advice on Assembly Bill 488 as an Organization or Platform? Contact an Experienced Business Lawyer in Los Angeles today
The Hakim Law Group stands ready to help charity organizations and platforms. Our team of skilled and highly reputable business lawyers have worked in top-tier international law firms and have served as general counsel to major companies. The high level of diverse legal and business experience is paramount to our boutique approach—which produces efficient, responsive, and effective results. For further information or to schedule an appointment with a leading business lawyer in Los Angeles, please contact The Hakim Law Group at 310-993-2203 or visit www.HakimLawGroup.com to learn more.