It is that time of year and, despite the market downturns, many charities are holding their annual gala fundraisers. Events ranging from elegant affairs at exclusive locations, to exotic parties that rival the most talked about events following a Hollywood awards event, to dinners at suburban hotels, and many more will take place over the next few months.

If you have ever served on the board of a charity, or volunteered in some other capacity in connection with the planning of a gala, then you probably already know that organizing a gala is a lot of work. If you have never done it before, your first experience will likely be an eye-opening experience. As a result, it may come as no surprise that many of the most successful galas (and the most profitable ones for the charity) are actually organized by consultants hired by the organization.

The hired consultant may perform a wide variety of functions, depending on the needs of the organization. Typically, the consultant will take the lead in organizing the event, for example, by securing an appropriate location, or by planning and arranging for catering, entertainment, decorations, invitations and so on. The charity, on the other hand, will primarily focus its time and efforts in cultivating sponsors and selling the tickets. Some consultants will also participate in the solicitation of sponsors and/or donors and other activities more directly related to the fundraising portion of the event.

You may be surprised to know that most states have laws that regulate a consultant who directly or indirectly (i) plans, manages, conducts, carries on or assists in connection with any charitable solicitation campaign, or (ii) solicits on behalf of a charitable organization or any other person. These laws, which apply to any fundraising activity, not just galas, include circumstances where a charity hires a consultant to assist with a charity gala, and in most cases, even when the consultant never directly asks anyone for a contribution.

Therefore, the charity needs to make sure someone in the organization is asking the following questions about any consultant being retained to assist with the gala.

• First, is the consultant licensed as a professional fundraiser or fundraising consultant?
• Second, does the agreement between the consultant and the charity comply with the state's laws with respect to fundraising agreements?
• Third, has the consultant filed a copy of the contract with the appropriate state agency (in many states, this is the attorney general's office) in the state in which the "fundraising" will occur?

At this point you may be asking yourself why this is so important to know. The laws of most states impose an obligation upon charities not to enter into agreements with consultants who are not registered and in full compliance with the state's solicitation laws. In many states, failing to comply with these laws can have grave effects on a charity, and in some cases, on members of its board. Just as failing to provide required disclosures on solicitation materials can lead to liability even in cases where the charity lacked improper motives, so too can liability be imposed when failing to deal with consultants in accordance with the law. Penalties for violations may include fines to the charity, revocation of the charity's registration and/or the complete prohibition of the charity from fundraising in the state. Depending on the state, civil and/or criminal penalties could even be imposed upon members of the board of directors.

If you serve on the board of (or volunteer for) an organization that holds a gala or some other type of special event (or otherwise engages in any fundraising activity), you should make sure to ask about the charity's compliance with state laws regarding consultants. Do not assume that someone else has asked these questions. You should make sure the following questions are being addressed: (i) in what states is the charity (a) holding its gala, (b) sending invitations to guests, (c) soliciting sponsors, or (d) engaging in any solicitation activity; and (ii) what requirements apply to charities using consultants in each of these states. You may also want to confirm that the charity's annual report to each state attorney general or other state agency discloses the retention of consultants.

With so many wonderful charities doing crucial work for our communities, it would be a shame if that work were jeopardized because the charity lost its ability to fundraise. This is an important reminder that working with charities is complicated. The laws impacting charitable organizations vary greatly from state to state. If you are involved with a charity, or are thinking of becoming involved with a charity, make sure you seek experienced, skilled legal professionals to work with you and your organization. The consequences of missteps in starting or administering the organization can extend far beyond the income tax ramifications.

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