Nonprofit Law Resource Library
International Philanthropy & NGOs
Let's be friends
It is commonly heard in the UK charities world that establishing an 'American Friends' group in the US - a charity designed to raise funds for a UK parent organization - is desirable and profitable. It could be both; it is, too often, neither.
As a technical matter, the process is not difficult. There are two stages. First, the charity must be incorporated in one of the 50 American states. Then the by-laws must be agreed, describing how the charity will conduct itself. If these matters are agreed quickly, formal incorporation can be granted in a few days or weeks.
The second stage takes longer: the application to the US federal government, through the Internal Revenue Service, for recognition of tax-exempt status. The heart of the application is providing a three-year projection of activities, income. and expense. Allow four to twelve months for the application to work its way through the regulatory digestive tract. Fortunately, operations can begin while the application is pending.
Horror stories abound of what American lawyers have charged UK charities for these services. Whatever you may have heard, the work should cost between £2,000 and £7,000. Beware, however, of offers to do the work gratis, as this usually means it gets done at a painfully slow pace.
But ask yourself one question: why should Americans give to a UK charity, when there are 692,524 American charities to choose from? Does the UK parent charity work in a programme or part of the globe where there is American interest, but little presence, for example, moorland preservation? Or is the programme inherently applicable, such as medical research? Or perhaps you have appeal to individual donors' private interests.
Misconceptions abound about American Friends groups. I will deal with these in a later column, but consider three here. First, money raised can be transferred back to the UK, no questions asked. Second, a UK charity can 'registerí in America and start raising funds with tax-advantages for the donors. And third, an American Friends group is needed to accept foundation grants and corporate gifts. No, no, and no.
The record on American Friends groups is mixed. Some have crashed spectacularly, while others, often nurtured with long and generous subsidy, have succeeded superbly well. The outstanding example is the National Trusts Royal Oak Foundation in New York. Most friends groups tend to wax and wane with the enthusiasm of their American supporters and with the varying degree of commitment by the parent charity.
In the right circumstances, an American Friends charity is a gold mine - albeit a gold mine controlled by an independent owner.