Charitable Solicitation Laws – Commercial Co-Venture


Commercial Co-Venture
As hundreds of pink products attest, cause marketing is big business in this country. However, nonprofit and for-profit firms looking to take advantage of multi-jurisdictional fundraising and charitable sales promotions need to know that 40 states have laws regulating charitable solicitations. They generally define and regulate “commercial co-venturers,” “fundraising counsel,” “professional fund-raisers/paid solicitors,” “solicitations” and “contributions”. The specific terminology varies from state to state, but these are the terms that are most common.

Commercial co-venturer

Generally, a commercial co-venturer is a person regularly and primarily engaged in commerce (other  than in connection with raising funds for charities) who conducts a “charitable sales promotion.”  Co-venturers are typically for-profit companies. Approximately twenty-one jurisdictions regulate commercial co-venturerers.

While definitions vary from state to state, in general, a “charitable sales promotion” is an advertising or sales campaign conducted by a commercial co-venturer, which represents that the purchase or use of goods or services offered by the commercial co-venturer will benefit a charitable organization or purpose.

Some states have broader definitions. For example, Massachusetts includes in its definition of a commercial co-venturer “any person who promotes the sale of any good or service which is advertised in conjunction with the name of any charity.”

In general, the legal requirements imposed by these statutes include:

  • The requirements of a written contract between the charitable organization and the commercial co-venturer. Sometimes the state requires that certain provisions be included in the contract (e.g., a description of the goods or services to be offered to the public, the geographic area of the promotion, the beginning and ending dates, the manner in which the charitable organization’s name will be used, provisions for final accounting by the commercial co-venturer, and the date and manner in which the charitable organization will receive its benefit).
  • The charitable organization must file a copy of the contract prior to the charitable sales promotion (Note: the charity, not the commercial co-venturer, frequently must file the contract).
  • Several states require registration and bonding of the commercial co-venturer.  These include Alabama, Maine, and Massachusetts.
  • The commercial co-venturer must keep a copy of its final accounting.
  • Some states require disclosure statements to be included in the advertising.

Approximately twelve states require advertisements to disclose the expected portion of the sales price, percentage of gross proceeds, or other consideration the charity is to receive as a result of the sales promotion. It is important to note that many states require this disclosure on a per-unit basis. For example, “$1.00 per box” or “5% of the purchase price” rather than a disclosure of the overall contribution to charity as a result of the charitable sales promotion.

Failure to comply has real world consequences. In a 1999 promotion, Yoplait did not reveal on the outside of the lid its maximum donation, which was then $100,000. That prompted an investigation by the Georgia attorney general’s office, which found that 9.4 million lids were returned during the three-month promotion, which promised to pay 50 cents a lid.

Ellis Carter is a nonprofit lawyer licensed to practice in Washington and Arizona. Ellis advises tax-exempt clients on federal tax matters nationwide. For an estimate on handling the legal aspects of a charitable sales promotion including contracts and registrations, contact info@carternonprofitlaw.com.

16 Responses to Charitable Solicitation Laws – Commercial Co-Venture

  1. Which states are the states that have laws about commercial co-ventures as you have discussed in this post?

    Also, could you help me find information for Idaho’s laws about commercial co-ventures?

  2. Hi,
    Do you know if Michigan has CCV laws? I have seen product using the following advertising language: “a portion of the proceed go to” which is very vague, is that legal in Michigan?

    We live in Michigan an my husband is a songwriter and we want to donate all the revenue from the sale of a song minus expenses to charity. We feel we want to do good but that we could get in legal troubles doing that. It is difficult to declare the exact amount we are going to donate per unit because each vendor takes a different percentage of the sale price and each vendor sales the song at a different price, we have no control over that. We do not have any idea how many units we are going to sale so we cannot disclose the total max amount we are going to donate. We have spent a significant amount in producing the song and we would like to minus that cost and donate just our profit. Any help on how to set/word this? We are based in Michigan but the songs are distributed nationwide by online vendors? Thank you for any help.

  3. Thanks for this very informative post.

    Quick question:

    Do you know if there are any Federal laws or requirements, tax or otherwise, that commercial co-venturers must abide by?

  4. Hey Ellis,

    My company reddiamondcard.com which is located in South Carolina will be selling discount cards and donating $5 for every card to a local charity. I just want to make sure I’m not breaking any laws so according to your email, I don’t have to file anything? I actually never thought of this until I stumbled against your article. I am shocked that they are even regulations on this as I don’t even have to make a donation to sell my cards and am not even marketing it, I just want to do some good by making a donation. Please advise
    Thanks

  5. If a company does not disclose where the money is going (e.g. “Help us fight hunger” vs. buy this and we’ll give $ to XYZ Charity), do you still need a CCV? Further, would the following be legal without complicated contracts: We sell something and say in the advertising that “We are proud to support organizations working to reduce hunger in America. So far this year we’ve donated $10,000.00 to charities that work to reduce hunger and you can help us do more.” Basically we’ll already have donated the money by the time we advertise the product and will donate more if it works the first time around and are able to market it again.

  6. I’m am curious about these cause marketing campaigns that organize to raise money via a significantly promoted fund raising event on a single given day, rewarding nonprofits with ‘cash prizes’ for.most unique donors, largest comulated donations etc., and drive thousands of donors to a web site to make these donations, where they are charged a credit card fee of nearly 5%per transaction that goes first to a NPO foundation but the credit card/web site services are directly run by and related to its connected for-profit company. Have they found a way to divert detection? Is this indirect commercial co-venturing? Someone is benefiting monetarily from these endeavors through the credit card fees and related services-it doesn’t seem ethical, possibly illegal in certain states? I don’t see the companies in questions listed On the co-venture list in my state.

  7. Is it necessary to be an organization or have a fiscal sponsor to coordinate charitable sales? I recently had a sibling pass away from cancer & want to organize a sale of art to raise money for education, awareness, & research, with a specific existing non-profit in mind for the donations…I want to make sure I can do so without any legal ramifications. Also, if solicitation of donors is restricted by regulatory acts, how does one create advertising or promotions legally?

  8. Hi,

    Very informative post. I’m curious how/if this would apply to working with a school for a fundraiser. I create websites in various niche areas, which make money through things like Google ads. I had an idea to partner with a school to create a website on some niche topic, with the goal to fundraise through ad revenue.

    So lets say the site is full of tips for people who own chickens. I’d create the site, design it, host it, etc. and the students would write articles to go up on the site. Any ad revenue that came in would be split between me and the school on an ongoing basis.

    In this case we aren’t really selling anything, but how do you think this would need to be handled?

  9. We also create websites and mobile apps for schools and non-profits. The school or non-profit would sell ads to companies who want to be sponsors. We would create the advertising layout, copy, fees for changes etc and charge the non-profit a fee for our services. The non-profit would keep all of the ad revenue. They would also promote the ad space to sponsors. Do we need to be concerned about any co-venture laws?

  10. I am a partner in a start-up commercial co-venture company, FundPhotos, LLC. We are an online photo processing and personalized photo merchandise retailer connects each customer’s purchase with a Participating Charitable Organization (PCO), which they select from our database of PCOs and to which 10% of their purchase price is donated. We have contracts with all of the PCOs in our database (small right now, we have just recently launched) and are aware of the CCV regs in all states.

    My question is regarding the donation. It is our understanding that because of our business model and pricing structure, the charitable donation is from the customer, but I have recently read something in a legal blog that stated otherwise. So who gets credit for the donation, the customer or the company?

    Our corporate offices are located in NJ, although I don’t believe that impacts the answer.
    Thanks for any insight you can share.

  11. Thank you for this informative article! I run a startup called Art to Aid, a marketplace where creatives can sell their work and give a portion of their proceeds to an organization of their choice. We are trying to understand CCV regulations as they apply to our business model. Currently, we state that “x% of this sale goes to (organization’s name)”. It seems that this is in violation of CCV regs. If we were to state that “x% of this sale goes to an organization that (describe what the org does)” without using the org’s name, would that clear us of CCV regulation? We are based in Georgia, but our creatives are from all over the US.

    Thank you in advance for your insight!

  12. If my for-profit business asks for donations for a non-profit, i.e. show banners on our website saying “Help xxx do xxx” and link them to the non-profit’s website where the donations can take place, do we need to register or prepare in any way? Our legal department is hesitant as they do not know if that’s explicitly legal, but I can’t imagine how it shouldn’t be…
    Thanks!

  13. I sale products at High Schools for bands and athletic teams in North Carolina. According to the solicitation statute, accredited schools are exempt from the law. The Department of State is saying I need to register because although I only work directly with a band director or coach, in some instances, they might give the cashiers check to their booster organization.

    is there any precedent for the way the Department of State enforcers are interpreting the law? I do not have any contracts and only have verbal agreements of what I give the school for each item I sell during a event.

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