What You Need to Know About Commercial Co-Ventures

January 7, 2015 Alerts and Newsletters

Commercial co-ventures are a form of cause-related marketing that have proliferated in recent years. Commercial co-ventures between a company and a charity not only help charitable causes, but also tend to increase a company’s bottom line. Indeed, market studies have shown that most people will opt to purchase a product associated with a charitable cause over a competitor’s product. Commercial co-ventures are highly regulated, so carefully planning and must be taken to avoid any legal pitfalls.

What is a commercial co-venture?

Generally, a commercial co-venture is a charitable sales campaign where a brand advertises to the consumer that the brand will donate a portion of the purchase price to charity. 

How is it regulated?

Over 30 states have laws governing commercial co-ventures. Six states have registration requirements, and two states have bonding requirements. Many states have contractual, recordkeeping and advertising requirements. In addition, consumer protection laws apply to commercial co-ventures, the IRS may get involved to determine if a charity’s involvement triggered UBIT (unrelated business income tax), and private class actions are possible. 

General Requirements

  • Charity must be registered in applicable states, except if it is within a generally exempt category (e.g., religious institutions and accredited educational institutions).
  • There must be a written contract between charity and the commercial co venturer.
  • This contract must be filed with certain states. (Typically charity’s responsibility).
  • Registration is required in AL, HI, IL, MA, MS, and SC.
  • Bonding is required in AL and MA.
  • Commercial co venturer must keep a copy of its final accounting for three years.

Mandatory Contract Provisions

  • Description of goods and services offered.
  • Estimate of number of goods sold/total donation.
  • Geography of promotion.
  • Start/end dates.
  • How name of charity will be used.
  • Per unit or $ amount to be donated.
  • Any maximum or minimum donation.
  • Date and manner in which charity will receive donation (every 90 days required in CA).
  • Statement that GA, NH and NJ laws apply.
  • Statement that contract is cancelable within 15 days in NY.
  • Signed by co-venturer and charity. (2 officers of charity required in CA, MA, PA, VA)

Advertising Disclosures

  • Per-unit amount going to charity in $ or %.
  • Any maximum or minimum donation.
  • Name, address and telephone number of charity.
  • Statement of how funds will be used. (MA).
  • Statement that effort being conducted by a “paid-fund-raiser.” (MA)
  • Statement that donation is not tax deductible. (CA) (at least at point-of-sale/on package).

Helpful Hints

  • Be upfront with the consumer. Clearly and conspicuously disclose what purchase triggers a donation and what the donation will be.
  • Avoid vague donation statements such as, “all net profits,” “a portion of the purchase price” or a “portion of the proceeds” goes to charity. A consumer really has no understanding of exactly how much is actually being donated to charity.
  • Don’t set any minimum donation so high so that a consumer’s purchase really doesn’t affect the total donation to be made.
  • Don’t set a maximum donation so low so that it is reached well before the end of the promotion.
  • You can license the use of the charity’s name/logo, but the charity should not take an active involvement in any solicitation or advertising. This may trigger UBIT.
  • Don’t receive any payments from the charity. Separate, more onerous requirements exist for paid solicitors and fund-raising counsel.

In sum, structuring and running a successful commercial co-venture campaign requires consideration of many legal and practical issues. Please feel free to contact Rob Laplaca at (203) 222-3110 or [email protected] if you have any questions about the issues discussed in this article.

Firm Highlights

News

61 Verrill Attorneys Honored as Best Lawyers, 12 as Lawyers of the Year

(September 3, 2019) – More than 60 Verrill attorneys were once again recognized as “Best Lawyers” by Best Lawyers® 2020 . In addition, 12 attorneys from the firm were named “Lawyer of the Year,&rdquo...

Blog

EEOC Announces EEO-1 Component 2 Pay Data Collection Will NOT Be Renewed

Yesterday, September 11, 2019, the EEOC announced that it will not seek to renew collection of EEO-1 Component 2 Data for 2019, 2020, and 2021.  This does not impact employer’s current EEO-1 obligations to...

Publication/Podcast

BORIM Issues Guidance on Recent Changes to Practice of Medicine Regulations

The Massachusetts Board of Registration in Medicine (“BORIM”) recently finalized revisions to 243 CMR 2.00 (Licensure and the Practice of Medicine).  These changes took effect on August 9, 2019.  Because of the uncertainty resulting...

Matter

Champion of Wind Energy Projects

Publication/Podcast

Alert: Government Contractors and Employers of 100 or More Employees Must File New EEOC Report by September 30, 2019

EEO-1 Component 2 Report Due by September 30, 2019 All employers that are required to submit an EEO-1 federal report -- employers of 100 or more or federal government contractors and first-tier subcontractors with...

Event

7th Annual Natural Gas Conference

Matter

Goose Rocks Beach Litigation

We represent coastal landowners in an appeal pending before the Maine Supreme Court, in which we are challenging a lower court ruling that title to Goose Rocks Beach in Kennebunkport is held by the...

Event

Developing Opportunities: How You Can Take Advantage of the New Opportunity Zones

On October 8, business law attorneys, Regina Flaherty, Mark Googins, and Cheryl Johnson will be presenting at the Maine Commercial Association of Realtors' Annual Convention, "Developing Opportunities: How You Can Take Advantage of the...

News

Verrill Adds to Growing Intellectual Property Practice

(September 11) – Verrill is pleased to welcome patent attorneys Lin Hymel and Beverly Hjorth to the firm’s Boston office. The newest members of Verrill’s rapidly growing Intellectual Property practice, Hymel and Hjorth round...

Blog

The Sharpie and Employment Litigation Documentation