Legal Issues for Nonprofits When Planning Events
One of the most effective tools a nonprofit can use in spreading its message and encouraging donations is to have an event. Raffles, gatherings, athletic events such as a 5k, a bake sale– the list is extensive. Coming up with a good idea to raise money through an event is only part of the process. You need to clear some legal hurdles as well.
Whether you just started a nonprofit or are a seasoned event-planner within your organization, it’s helpful to be mindful of some of the common legal issues that arise in Pennsylvania when hosting a charity event.
Charitable Solicitation Registration and Renewal
That’s right – being a nonprofit organization in and of itself is not enough to start collecting contributions! The Pennsylvania Solicitation of Funds for Charitable Purposes Act, 10 P. S. §162.1 et seq., requires organizations soliciting charitable contributions from Pennsylvania residents to register with the Pennsylvania Department of State Bureau of Corporations and Charitable Organizations by filing a Charitable Organization Registration Statement (BCO-10), unless the organization is excluded or exempted from the Act. The list of exempted organizations can be found here. This must be done before you can host your event if you plan on soliciting donations.
An initial registering organization must also send in the required documentation to demonstrate that the organization is, in fact, a nonprofit entity. For the initial registrant, the form must be filed prior to any compensated person soliciting contributions on behalf of the charitable organization or within 30 days of receiving more than $25,000 in gross contributions for organizations that do not compensate any person to solicit contributions.
In addition to the original registration requirement, a nonprofit must renew no later than the 15th day of the eleventh month following the close of the organization’s fiscal year. Don’t worry – the Bureau will advise you of your renewal date.
As you can see, it is important that you keep up with your registration and renewal so you can solicit donations – which is likely why you would hold the event in the first place!
Small Games of Chance
You’ve probably purchased a raffle ticket at some point in your life. Perhaps you’ve even purchased a “pull tab” game at an event. Did you know for that raffle ticket to end up in your hand, the nonprofit organization had to jump through some legal hoops? In Pennsylvania, “gambling” is illegal unless the law has carved out an exception.[1] One such exception is the Local Option Small Games of Chance Act (“SGCA”).
Section 102 of the SGCA says: “[t]he General Assembly hereby declares that the playing of games of chance for the purpose of raising funds, by certain nonprofit associations, for the promotion of charitable or civic purposes, is in the public interest.” An “eligible organization” can obtain a license for such games. The SGCA defines an “eligible organization” as “[a] charitable, religious, fraternal or veterans’ organization, club, club licensee or civic and service association.” The SGCA very specifically itemizes the kinds of games allowed: punchboards, pull-tabs, raffles, daily drawings, weekly drawings, 50/50 drawings, race night games, and pools.
In addition, the SGCA provides prize limits and strict rules about who may conduct the games. There are different kinds of licenses an organization can obtain to conduct the games – regular (annual) and monthly (good for 30 days) licenses. An organization can also obtain a special raffle permit that allows the organization to provide prizes in excess of the prize limit, though this special permit has limitations of its own on prizes. Proceeds from the sale of small games of chance are to be used for “public interest purposes.” There are also strict record-keeping and reporting requirements.
Small games of chance are subject to broad oversight. The Pennsylvania Department of Revenue, local licensing authorities, the Pennsylvania Liquor Control Board, the Pennsylvania Gaming Control Board, and law enforcement agencies are all tasked with enforcement of the SGCA. Though we’ve just barely scratched the surface on this topic, it is safe to say that if your organization wishes to sell small games of chance at an event, it should contact an experienced nonprofit attorney.
Alcohol
An event like a gala would not be complete without some classy drinks. Many fundraising events provide alcohol in some form – bars, beer carts, etc. However, alcohol is tightly controlled and regulated in Pennsylvania.
Generally, the sale of alcohol is prohibited unless the seller holds a valid license or permit issued by the Pennsylvania Liquor Control Board (PLCB). In the context of a single fundraising event, your organization should obtain a Special Occasion Permit (SOP). However, be cautioned that not all organizations qualify for such a permit. A list of eligible entities can be found here. Your group can only be issued one SOP per calendar year, and there are limits on how many days per calendar year your organization can use the SOP. If you have never sought a SOP before, you must submit your application online at least 30 calendar days before your event. If you have had a SOP in the past, you must submit your application at least 10 business days prior to your event.
Assuming your group is eligible for the SOP, you must also give the local police department (or the Pennsylvania State Police if there is no local PD) written notice at least 48 hours prior to each use of the SOP. Your group is responsible for legally procuring the alcohol and must retain the proceeds from its sale. Your organization can partner with and donate proceeds of the sale to third parties, but there are special rules in place for such a partnership. Only the holder of the SOP can sell alcohol.
Of course, the SOP holder is not allowed to sell alcohol to minors and/or visibly intoxicated persons. Such a sale could result in civil or criminal liability. Speaking of liability, while the law does not require insurance to be purchased by an organization holding an event, it is highly recommended that you do.
Liability
If you’ve ever participated in an event like a 5k, you will recall that you were asked to sign a waiver of liability form. In this litigious world, as a nonprofit organization, it pays to be careful. When you host an event where people could sustain injuries, such as athletic events/races, events with animals, events with alcohol, etc., you should ask participants to sign a waiver of liability form. An experienced attorney, such as the ones at Nauman Smith, can walk you through your form and advise you on what language to include in it to best protect your group in your situation.
[1] There is no statutory definition of “gambling” in Pennsylvania, so one must turn case law to determine what constitutes gambling. Generally, gambling occurs where there is consideration (i.e., a payment), chance, and a reward. All three must be present to be considered “gambling.” Gambling law is complex and will be addressed in future articles.