Businesses of all sizes are often proud to support charities or charitable causes and give back to their communities. For many businesses, commercial co-ventures with charitable organizations have become a very effective way to support charity. Commercial co-ventures, also known as charitable sales promotions, are typically defined to include any advertising or sales where a person or business represents that the purchase or use of goods or services will benefit a charitable organization or charitable cause in any amount. Many consumers are familiar with these types of promotions, which can run the gamut from a local restaurant donating the proceeds from every meal sold over a weekend to a national brand donating a specific dollar amount for each of its products sold over a specific time period. These types of promotions can generate significant funds and awareness for charitable organizations. Commercial co-ventures are also an opportunity for businesses to support charitable causes in a tangible and visible way while also driving sales for the business.
However, many states regulate businesses’ participation in commercial co-ventures and state laws governing commercial co-ventures vary substantially — from laws primarily functioning to give charities and consumers recourse against bad actors to extensive filing and reporting requirements for the businesses participating in commercial co-ventures. Businesses that engage in commercial co-ventures without complying with the applicable state requirements risk significant penalties and other negative outcomes, not least of which is bad publicity. Before a business jumps into a commercial co-venture, it should identify and understand the state commercial co-venture laws that will govern it. As mentioned earlier, most state laws define commercial co-ventures to include any advertising or sales where a person or business represents that the purchase or use of goods or services will benefit a charitable organization or charitable cause in any amount. Similarly, a commercial co-venturer is typically defined to include a person or business that is primarily engaged in trade or commerce for profit and that conducts a charitable sales promotion.
State laws governing commercial co-ventures often impose additional recordkeeping, advertisement disclosure, or state filing requirements on a commercial co-venturer. The most basic requirement is that any commercial co-venture arrangement be detailed in a written contract. The required terms of the contract, though, vary from state to state. For example, in South Carolina, commercial co-venturers are required to submit a registration application, a copy of the contract between the charity and commercial co-venturer, a solicitation notice, and a filing fee to the Secretary of State’s office prior to any commercial co-venture activity. Then, a joint financial report, signed by the commercial co-venturer and the charitable organization receiving the donations, must also be filed after completing the charitable sales promotion, or annually, in the case of campaigns lasting more than a year. On top of registration and reporting, some states, like Massachusetts and Alabama, require a commercial co-venturer to obtain a bond ranging between $10,000 and $25,000 prior to any charitable sales promotion activity. Some state filings can be obviated by including specific terms in the contract between the business and charity, so special attention should be paid to how the contract is drafted and the applicable state regulations based on where the promotion will run.
Alternatively, state commercial co-venture laws may require a charitable organization to report businesses that have conducted commercial co-ventures for their benefit as part of the charity’s own periodic state reporting or registration requirements. Ohio, for instance, requires many charitable organizations to register and report to the Ohio Attorney General and those charitable organizations must report activities with commercial co-venturers. Ohio generally does not require a commercial co-venturer to register with the state, but requires the commercial co-venturer to obtain the written consent of the charitable organization before a charitable sales promotion, imposes special rules governing deceptive practices and advertisements on commercial co-venturers, and requires the commercial co-venturer to provide accounting information from a charitable sales promotion to the Ohio Attorney General upon request.
Sometimes, businesses can accomplish comparable ends without being subject to commercial co-venture regulations, but careful planning is necessary. Similarly, if a business does wish to embark on a commercial co-venture, it must take care to have terms that can be measured. For example, the charity must be specified (not a catch-all category like “charities that support the environment”), and the amount to be donated must be concrete (e.g., $0.10 per item sold or 1% of net sales). Businesses may also wish to guarantee a minimum donation or cap a maximum donation. All of these terms must be addressed in the consumer disclosures. Finally, businesses should be aware that in addition to the commercial co-venture regulations, charities are also subject to state-specific rules regarding their ability to solicit donations. Charities must be properly registered for these arrangements to comply with most state laws.
Commercial co-ventures present a unique opportunity for businesses to impact charities and their communities while enhancing their profile and driving sales. Yet, businesses must be aware of and plan for state requirements for commercial co-ventures. Taft attorneys are experienced in helping clients navigate and comply with state regulations in commercial co-ventures.