The CA Attorney General (AG) has primary responsibility for regulating, enforcing and supervising organizations and individuals that administer and/or solicit charitable funds or assets in California. The CA AG has the duty to protect donors to charity, charities themselves and the beneficiaries of charities. The AG has broad authority under state statues to regulate charitable organizations and trusts and to commence law enforcement investigations and legal actions to protect the public interest
Registration & Filing
- Every charity that meets requirements, must file with the AG office within 30 days after it initially receives property.
- Annually, registered charities are required to file a copy of their Form 990, 990-EZ, 990-PF along with a copy of the Form RRF-1 and fee.
- Every registered charity with gross revenues over $2,000,000 (excluding grants from and contracts for services with government entity) must:
- Prepare annual financial statements under GAAP which are audited by independent CPA and make those statements available upon demand of AG and public.
- Also if the charity is a corporation, they must have audit committee appointed by board.
AG Board Rules & Independence
- Under AG rules, every nonprofit benefit corporation must have at least three officers on the board.
- This includes a President (or Chairman of Board), Secretary, and Chief Financial Officer.
- These positions are typically appointed by Board of Directors.
- Duties of Officers and methods for appointment and removal should be clearly stated in By-Laws.
- Directors may delegate their power to others such as officers or employees, but directors are ultimately responsible for all corporate decisions.
- Could be held personally liable to repay damages where they have breached their duty or loyalty to corporation.
- CA law requires that all board of directors of public benefit corporations be composed of at least 51% “disinterested” persons.
- “Disinterested” means that neither the director nor any member of their family is paid by the corporation to do anything other than act as trustee.
- This helps protect against unfair self-dealing transactions and other conflicts of interest.
- Self-dealing transaction – contract, agreement or other action affecting the assets or income of public benefit corp.
- Financial interest is “material” to a director if it is large enough to create the appearance of conflict of interest
- Self-dealing transaction could actually benefit the organization and is treated fairly
- Legally valid if:
- Contracts for needed services at a fair price
- Terms are reasonable to corporation
- Contract is for corporation’s benefit (not the director’s)
- If the corporation could not have obtained a more advantageous deal.
- Has to be approved in advance by majority of directors not counting the interested director
- Director can give notice of self-dealing transaction to AG for approval. Such notice would have effect of shortening statute of limitations for bringing a civil action to challenge self-dealing
- With narrow exceptions, public benefit corporation cannot make loans to officers without AG approval. Directors could be held personally liable for making prohibited loans. Loans to directors are never permitted
- Legally valid if:
- Charities and certain other private benefit organizations may conduct raffles to raise funds for beneficial or charitable purposes in CA
- A non-profit organization must register with the AG office prior to conducting the raffle activity. Registration form should be filed at least 60 days prior to date of raffle. A confirmation letter must be received from Registry of Charitable Trusts prior to conducting activity
- The registration period is Sept 1 to Aug 31
- A single aggregate report for all raffles held during the reporting year (9/1 to 8/31) is due on or before October 1st of each year (Form CT-NRP-2). If the raffle is held as part of a larger fundraiser, record must be maintained of raffle proceeds/expenses separately for reporting.
- 90/10 rule
- Penal code section 320.5(b)(4)(A) states that 90% of the gross receipts generated by the sale of raffle tickets for any given draw are to be used by the eligible organization for charitable purposes
- This means only 10% can be used for expenses or operating costs for conducting the raffle
- 90/10 rule applies to 50/50 raffles. This makes 50/50 raffles therefore illegal in CA since 90% must be used for charitable purposes
- Penal code 320.5 is a criminal statute. Violations could be forwarded for potential prosecution
- 90/10 rule
Charity Poker Nights
- Eligible nonprofits are allowed to hold charity poker nights which are approved by the Department of Justice Bureau of Gambling Control
- Need to register annually and pay registration fee of up to $100
- Limits eligible organizations to one fundraiser event per calendar year
- Event is further limited to no more than 5 hours of duration and set a limit to four events per location unless pre-approved for “rural area”
- Prohibits cash prizes or wagers to be awarded to participants. Winners are entitled to donated prizes. Individual prizes must not exceed cash value of $500 per individual and total prizes cannot exceed cash value of $5,000 (gift cards are not considered cash and are ok)
- At least 90% of revenue has to go directly to the
eligible nonprofit organization for exempt purposes
- Persons under 21 are not allowed to participate
- Records must be maintained and provided upon request to the Bureau of Gambling Control
If you need further explanation on any of the information listed above, give us a call. We’re here so that you can relax.