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Cause marketing is a rapidly growing practice with significant legal requirements.
As cause marketing grows, marketing departments need to be aware that certain campaigns may trigger legal obligations for both the for-profit marketer and its charitable beneficiary.
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.
Cause marketing is a rapidly growing practice with significant legal requirements.
As cause marketing grows, marketing departments need to be aware that certain campaigns may trigger legal obligations for both the for-profit marketer and its charitable beneficiary.
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.
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Generally, a commercial co-venturer is a person or entity regularly and primarily engaged in commerce (other than in connection with raising funds for charities) that conducts a charitable sales promotion. Approximately 21 jurisdictions regulate commercial co-venturers engaging in charitable sales promotions. Only six states require registration though many others require a written contract, require certain disclosures, and impose record keeping requirements.

Some states have broader definitions than others. 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.”

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The states that regulate commercial co-ventures have different requirements but, in general, the legal requirements imposed by many of these statutes can include:

  • 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).
  • A copy of the contract must be filed prior to the charitable sales promotion. Note that the charity, not the commercial co-venturer, frequently must file the contract.
  • Registration and bonding of the commercial co-venturer. These include Alabama and Massachusetts.
  • Drafting and filing the IRS exemption application (either Form 1023-EZ, Form 1023, 1024, 1024-A) and related statements
  • The commercial co-venturer must prepare an accounting, retain it for a specified number of years, and make it available to state regulators and their charitable co-venturer.
  • Disclosure statements to be included in the advertising.
  • Nonprofits must disclose co-venture relationships on their charitable solicitation registrations.
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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.
Failure to comply can prompt investigations from state Attorneys General which can lead to fines and negative publicity. The better approach is to do it right the first time. Once a company has conducted a compliant and successful charitable sales promotion, similar campaigns will be easier to implement going forward.
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.
Failure to comply can prompt investigations from state Attorneys General which can lead to fines and negative publicity. The better approach is to do it right the first time. Once a company has conducted a compliant and successful charitable sales promotion, similar campaigns will be easier to implement going forward.
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