Charitable Sales Promotions: Social Impact with Regulatory Compliance Requirements

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One way a business can make a social impact is by raising and donating money to a charity through its sales of goods or services.  This arrangement – where a company runs a charitable sales campaign and advertises to customers that it will donate a portion of the purchase price to charity – is called a commercial co-venture.  It’s a form of cause-related marketing and is regulated by many states across the country.  The popularity of this type of campaign makes sense because it’s a win-win: businesses are able to give money to a cause they believe in and charities receive money for their cause.  However, before running this type of promotion, businesses and charities need to be aware of and comply with the regulations governing commercial co-ventures.  Even though a business’s intention may be pure and good, the bottom line for businesses who want to run a charitable sales promotion is that it cannot say that it is giving a portion of its proceeds to a charity if it hasn’t made the proper arrangements with the charity and complied with applicable regulations.

 

Commercial co-ventures, as with other fundraising activities by charities, are regulated by state agencies interested in providing information, transparency, and accountability to the public about a charity’s fundraising activities to prevent deceptive solicitation practices and improper use of donations.  For example, in at least 45 states and the District of Columbia, charities are required to register and file annual (or periodic) reports.  Information collected through regulatory reporting also helps donors make informed giving decisions.  Charities that solicit donations from the public should already be aware of registration requirements that often need to be met before they can start asking for donations. Not everyone, however, is aware of the registration and compliance requirements for commercial co-venture arrangements.

 

In at least 24 states, a special registration filing is required, including 6 states (Alabama, California, Illinois, Massachusetts, Mississippi, South Carolina) where the commercial co-venturer (the for-profit business running the promotion) is required to register and at least 2 (Alabama, Massachusetts) where the commercial co-venturer is required to post a bond.  Registration fees range from $0 to $350 for the commercial co-venturer.

 

Aside from possible registration by the commercial co-venturer, there are a number of things that are generally required of any commercial co-venture arrangement including:

  • Unrelated to the potential commercial co-venture arrangement, the charity must already be registered with the state agency that handles charitable solicitation registrations;
  • The commercial co-venturer and charity must enter into a written contract concerning the charitable sales promotion (see details of what should be included in this contract below);
  • The contract is to be filed (usually by the charity) with the state agency handling charitable solicitation registration. That’s right, even if the commercial co-venturer isn’t required to register, the contract regarding the commercial co-venture may need to be filed with the state agency; and
  • The commercial co-venturer must keep accurate records concerning the proceeds that it should donate under the terms of the charitable sales promotion and make those contributions to the charity at the designated time(s).

The commercial co-venture contract must include certain provisions, such as:

  • The charitable purpose associated with the promotion;
  • The beginning and end dates of the promotion;
  • Where the promotion will be offered (geographical scope);
  • A description of the goods or services offered in the promotion;
  • How the donation will be calculated, such as the percentage of proceeds from every unit or dollar amount from every unit sold;
  • The maximum or minimum total donation from the commercial co-venturer, if any;
  • An estimate of how much the promotion will raise for the charity or number of units expected to be sold;
  • The date or interval and manner when the charity will receive the donation (certain states require contributions to be made on a regular basis during the promotion);
  • How the name and/or logo of the charity will be used in the promotion; and
  • Specific contract requirements required by state law, such as – for example – statements that the state’s law will apply, disclosure of the number of days within which the contract may be cancelled, or signatures by two officers of the charity.

State laws concerning commercial co-ventures also include advertising disclosures that must be made concerning the promotion.  Remember, the regulations exist to ensure that consumers know how their purchase is benefiting the charity, so advertising concerning the promotion must disclose:

  • How the donation will be calculated, such as the percentage of proceeds from every unit or dollar amount from every unit sold;
  • The maximum or minimum total donation from the commercial co-venturer, if any;
  • The name, address, and telephone number of the charity;
  • Certain other statements required by state law, such as how the funds will be used by the charity and that the donation is not tax deductible.

Setting up a charitable sales promotion can get complicated, especially where multiple states’ laws are in play.  But if you’re a business committed to your desire to make a social impact, it could be well worth the trouble of setting it up properly.  If you need assistance with complying with charitable solicitation rules, including those concerning commercial co-ventures, contact Hui Law here to set up an initial consultation.

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