An attorney general’s legal authority in charities regulation is exercised primarily in five areas of law:
- Nonprofit corporations
- Charitable trusts
- Charitable solicitations
- Health care conversions
In general, nonprofit corporations need to use revenues and assets to further the organization’s charitable purposes, and attorneys general are the primary protectors and regulators of nonprofits in their states. Attorneys general are responsible for ensuring that charitable corporations comply with legal requirements, that their assets are properly managed and spent, and that directors and officers fulfill their fiduciary obligations.
Although individual powers and duties vary by state and territory, most attorneys general have the authority to pursue relief against directors who violate their fiduciary duties and to dissolve the nonprofit organization, among other things. In some cases, attorneys general work with organizations to institute new processes to address previous problems. They may also enter into a settlement that requires changes from the organization, periodic reporting, or compliance monitoring.
State statutory and common law governs charitable trusts. Pursuant to those laws, attorneys general serve as protectors of charitable trusts and charitable assets whenever they are held in trust, including charitable interests in wills and in endowment funds.
Charities need resources to operate and many solicit donations to make serving their charitable purposes possible. Unfortunately, some bad actors use this as an opportunity to perpetrate fraud on the donating pubic. To combat this type of activity, most states enable attorney general oversight and action by providing broad regulatory and enforcement authority over charitable solicitation. This authority ranges from civil enforcement powers to criminal actions and provides attorneys general the power to fight persistent abuses by individuals and organizations that solicit charitable donations.
In many states, charities, charitable trusts, and fundraising professionals are required to register with state government and provide financial reporting. Some states also require registration for all entities that hold charitable assets or conduct business in their state. In most states, the attorney general is responsible for enforcing laws governing registration. Registration and financial filings can reveal violations of law such as excess compensation, failure to use assets for charitable purposes, improper self-dealing, mismanagement of charitable assets, and outright fraud, helping attorneys general to better serve their role in protecting charitable assets.
Health Care Conversions
A health care “for-profit conversion” is the sale of all or a substantial part of the assets of a charitable entity, typically a hospital, to a for-profit entity. Under the common law in most jurisdictions, the attorney general is mandated to oversee the due application of charitable funds and to ensure that nonprofit directors and senior management fulfill their fiduciary duties to the nonprofit corporation.
The attorney general may act under a specific state for–profit conversion statute or the office’s parens patriae authority and will often review a proposed for-profit conversion transaction to ensure that it conforms to antitrust law, as well as charitable trust law.