I am starting a company that will help non-profit companies raise money. Is it legal to charge a fee to the non-profit as a percentage of the amount of funds raised? If not, what legal way can we charge for our services. The idea is that we don't want to charge a large upfront fee or hourly rate if the fundraising campaign is not successful. We would like to charge a tiered percentage that would decrease as the campaign became more successful. For example, if the fundraiser brought in <$100K we would charge 10%, but if it raise >$100K that rate would be reduced to 8%. This is just an example not the actual model.
In addition, we are thinking of using an online service like paypal to process our online transactions. We would like the paypal account to be in our name so we have access to see the funds coming in. We would then transfer the money into an escrow account to be held until we distributed the money to the charity (less our percentage). Would we have a tax liability for the money that ultimately goes to the charity? I know if we made any interest on the money, we would be liable for those taxes but would we be responsible for the other 90% that is going to the charity?
I appreciate your help on this matter.
1 Answer from Attorneys
There are many companies that specialize in fund raising for nonprofit entities. I represent some companies that do this by both physical solicitation and using call centers. Payment is usually deterrmined by performance and can be either a contingency or percentage of the proceeds, or a flat fee per sale. Since most contributions are made by credit card, you should really consider negotiating with a good credit card processor to get the best rates possible. PayPal is convenient, but may be very expensive for your proposed business model.
You need a good attorney to help you set up your business the right way.
I hope this helps!
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