Billions of dollars are raised in crowdfunding campaigns around the world, but fundraising platforms can throw up complex legal issues ranging from tax to consumer and criminal law.
What is crowdfunding?
Crowdfunding allows anyone to raise money for anything, anytime, anywhere. Crowdfunding has grown rapidly in recent years as a popular method of online fundraising for individuals, businesses, not-for-profits, and charities. Usually, individuals or organisations will set a fundraising target online and then ask the crowd of the internet for donations to reach that target. With many crowdfunding websites available, it is easier than ever for people to raise funds online.
Crowdfunding is a great way for charities to broaden their network online, reach out to new supporters and raise awareness. Typically, platforms take a small percentage of the total amount raised to cover administration costs.
Researching crowdfunding pages
An important aspect of good charity governance involves doing sufficient research on any partners a charity plans to work with – even if it is simply a website for fundraising. Charities should consider that donors are likely to associate a charity with the crowdfunding website it uses, the charity’s board needs to be comfortable that the website reflects the values of the charity itself. Indeed, the charity board should take time to investigate the details of crowdfunding websites they are considering and ensure the one they use is reliable and reflects the charity’s values.
Statements regarding the destination of contributions for crowdfunding campaigns
One of the attractions of using a crowdfunding website is that it allows a charity to outsource elements of its fundraising activities. However, the responsibility for a charity’s fundraising ultimately rests with the charity’s board and it is important that the board members consider crowdfunding carefully.
Importantly for charities, it must decide what will happen if a crowdfunding campaign falls short of its target. Offering refunds is one option. However, if a charity decides that the funds it received on the way to the missed target could be used for another charitable activity, it must be clear about this in its campaign. The ACNC website provides the following example: if a homeless shelter set a funding target for an extension to its accommodation space, but wanted to be able to use whatever funds it received for meals and other services in the event that the campaign fell short of the target, the shelter should make this explicit at the outset of the campaign.
Be aware of the law
The board members of a charity need to be aware of the laws that govern fundraising activities – including online campaigns. The way fundraising laws apply to crowdfunding campaigns vary between states and territories and charities need to know how they affect their campaigns before they begin. A charity’s reputation is valuable and can be vulnerable if someone is fundraising on the charity’s behalf and they don’t do the right thing.
The expert team at Warlows Legal can help your organisation navigate the legal requirements and consider the ramifications of conducting a crowdfunding campaign. Contact us today for a free consultation!