Many businesses are looking for ways to help others during this unprecedented time. One method is for businesses to commit publicly to donating a specified item or dollar amount in exchange for some kind of consumer behavior (e.g., the purchase of a good or service). For example, one popular exercise company committed to donating $1 to a local food bank (up to $500,000) for every specified class taken over a weekend. In these trying times, efforts like this should be applauded. However, these arrangements (known as commercial coventures and charitable sales promotions) are also regulated by state laws in most states. Companies need to structure such arrangements to be compliant with these laws.
Generally, a commercial co-venture exists when a for-profit entity represents that the purchase or use of goods or services offered by the for-profit entity will benefit any charitable organization or charitable purpose. Sometimes the charitable donation is made in-kind—for example, a meal is donated rather than a dollar amount. Often the for-profit entity will wish to cap its donation at a specified limit and will limit the promotion to a specified timeframe.
Because these arrangements involve consumers and charities, many states have laws that regulate them from a consumer protection standpoint to attempt to make sure that the for-profit entity acts in accordance with its representations and that the money or goods that consumers believe are going to charity actually are contributed to the specified charity or charities. Usually, enforcement is handled through the state attorney general's office. State laws differ significantly, and it is easy to run afoul of them without careful consideration.
Often, businesses do not realize these arrangements are commercial co-ventures and are subject to regulation. Failure to comply with commercial co-venture laws may result in significant fines and, often more damaging, negative publicity.
We encourage all endeavors to ease the burdens being placed on many facets of society right now. A commercial co-venture may be a great way to allow your business to drive sales while also benefiting a nonprofit organization in need. Taft attorneys are happy to assist you with compliance with state regulations should your business wish to consider a commercial co-venture.