Fundraising - Good motive, Questionable legality.
October 18, 2018 7:08 AM   Subscribe

My daughter's gym which is operated by a very small for profit LLC is holding a fund raiser to purchase equipment for their gym. Is this fundraising approach legal? Is it ethical? Should we support it? Is it no different than kickstarter? More info inside...

My daughter is on a newer competitive cheer team. The coaches, staff, and owners of the gym are really great and my kid is enjoying this (almost) drama free team very much. This is your typical cheer gym that offers both competitive cheer and tumbling/gymnastics classes as well as a few other services like private lessons, birthday parties, open gym days etc...
They have been very helpful with individual athlete fundraising with all funds going to the athlete's account (for competition fees, uniforms etc..).
They(the owners of the gym) are hosting a fundraiser later in the month with the intent to use the funds to purchase equipment for the gym. I find it disconcerting that a private for-profit is hosting a fundraiser where the funds go directly to the private for-profit. Ultimately this will benefit my child and her teammates and I feel it is good to have this gym in our rural community so I support their efforts to make it better. On the other hand I think they are going about raising these funds in the wrong way.

In every other competitive/rec youth sport I have been involved in there has been a nonprofit body that does the fundraising and has a board that determines how the funds are used.

Side note: The fundraiser is an Elimination Dinner which includes gambling/raffle like features that I do not believe are legal for a for-profit to do.
posted by jmsta to Law & Government (13 answers total) 1 user marked this as a favorite
I don't think its illegal for smaller privately owned companies to fundraise like this.

Its just begging for capital and they aren't a public entity. So I am not sure what the issue is, other than being sort of gauche.
posted by RajahKing at 7:22 AM on October 18, 2018 [3 favorites]

The two main differences between a for-profit doing a fundraiser and a non-profit doing a fundraiser, as I see it, in the US are probably:

- Your donation won't be tax-deductible
- You're less likely to donate because they're not a non-profit

The legality of your side-note would depend on where you live.
posted by aniola at 7:56 AM on October 18, 2018 [2 favorites]

I hate to tell you this but this website does the same thing.
posted by roger ackroyd at 7:59 AM on October 18, 2018 [35 favorites]

It's absolutely legal. Kickstarter and GoFundMe both contain tons of small businesses asking for money for a new oven/fix up the bathroom/get a delivery truck/etc. I don't see any ethical issues with it at all.
posted by the agents of KAOS at 8:12 AM on October 18, 2018 [6 favorites]

There's no reason a for-profit entity can't solicit/accept extra income ("donations"), as long as they're not implying that those donations will be tax-deductible. For example, a coffee shop in my town was vandalized, and the owners asked for help paying their insurance deductible to help get the show back on the road faster. Not everyone in the community was a huge fan of that tactic, but it basically came down to "well nobody's forcing you to pitch in" and life went on. In fact, if I understand what you're saying about the individual athlete fundraising correctly, that actually might be something a non-profit could not do, since people generally aren't supposed to be able to use the non-profit status for their direct personal gain.

In any case: non-profits are daunting things to create, and work to maintain. In the US, just applying costs $850, and the processing takes several months. That's assuming you have someone to put the application together for you in the first place, or can pay an attorney to do so. I (not a lawyer) easily spent 25 hours working on the last one I did, with an hour of consulting a lawyer for advice on random questions that arose. For the established nonprofit that I'm the treasurer of, I spend about five hours a year on tax paperwork, plus time maintaining financial records the rest of the time, plus so many endless hours reminding the rest of my organization of their obligations. So I definitely understand why, having an established business model that's basically working for them, they wouldn't want to bother setting up an official nonprofit entity on the side that could handle fundraising.

All of that said, the gambling/raffle thing could very well be problematic. It depends completely on what your state laws say. Every time someone in my org has proposed doing something like that, I've told them what compliance would look like and they've decided it would be too big of a hassle, and have come up with another plan. So I think that's a valid point of concern to raise with management, who have quite possibly not even considered that aspect.
posted by teremala at 8:15 AM on October 18, 2018 [3 favorites]

I agree that it seems ethically icky. I'd consider quietly mentioning to someone that they might want to consult a lawyer before doing this.
posted by k8t at 8:16 AM on October 18, 2018

Depending on your state, the gambling/raffle issue may well be a problem. Even non-profits usually have to get a permit or license to do those.

I'm not sure what's unethical about their fundraising generally, as long as they don't misrepresent their status as a for-profit or what the money is for. For-profit businesses have to get their capital from somewhere. Now, I personally would probably not donate to a for-profit unless it was a very established community institution which had met some disaster, because I feel no great urge to bankroll other people's businesses without any return. But there's nothing wrong with it, per se.
posted by praemunire at 8:27 AM on October 18, 2018 [2 favorites]

Perhaps it is helpful if you don't think of it as a "donation" but a "pay-what-you-want equipment fee". It's either this or raise tuition rates, and I personally think this is an ethically better way to do it than to increase fees across the board, which will disproportionately affect lower income families, especially for capital improvements.
posted by Rock Steady at 8:55 AM on October 18, 2018 [8 favorites]

I should add, in reference to roger ackroyd's point above, I consider my monthly payment to MetaFilter an optional membership fee and not a donation.
posted by Rock Steady at 8:56 AM on October 18, 2018 [3 favorites]

Best answer: Speaking as a professional nonprofit development officer, I really don't see any ethical issues with this (I can't speak to the gambling in your jurisdiction, so I won't comment on that). It really is not any different than kickstarter.

Assuming they're being transparent about how the funds will be spent, and that they're not claiming gifts as anything they're not (ie: tax deductible), they're basically just asking people to give them funds for a capital purchase. It honestly isn't any different from you, as a private person, fundraising so your daughter can go on a trip/get uniforms, etc.

So, yeah, basically it is fine to ask people for money so long as you're clear about how it is being spent. Zero difference between this and Kickstarter.
posted by anastasiav at 9:43 AM on October 18, 2018 [3 favorites]

For a better idea of the salient gambling restrictions: first choose your state here, then scroll down to the "Gambling and Lotteries Law" section.
posted by Iris Gambol at 1:04 PM on October 18, 2018 [3 favorites]

Yeah, raffles and such should be approached with caution. Look up state law. I understand where you're coming from, that a for-profit fundraising in the same manner as a non-profit feels a little hinky. But as long as it's clear to all the donors, it's their money to do what they want with. I would not do this for my business, but everyone makes their own choices.
posted by rikschell at 5:46 AM on October 19, 2018

Doesn't seem problematic, although they should look into the raffle stuff; that may be iffy as a for-profit unless they have a no-purchase-required entry method.

Just FYI, the tax-deductibility aspect is not directly attached to being a non-profit, or at least they don't map 1:1 to each other. There are lots of non-profits that aren't tax-deductible. It's only a relatively limited subset of non-profits that meet one of the IRS 501(c) definitions for tax-exempt status that can accept tax-deductible donations. (I'm a member of a non-profit organization which was incorporated for decades before becoming a 501(c); prior to this we solicited donations, but they weren't tax deductible to the donor, but we had fewer recordkeeping requirements as well.)

Anyway, probably the ideal way for them to do their fundraising would be to create a separate nonprofit "Friends Of..." booster-club type deal, or at least this is what seems to be common practice around my area; the nonprofit holds all the assets and then employs the coaches, or maybe the fees go to the coaches salaries via a separate S-corp or some other structure directly. This is something they should talk to a local CPA or a lawyer about, probably. But it's a lot of overhead to take on for a one-time capital campaign.
posted by Kadin2048 at 3:12 PM on October 19, 2018

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