4 Principles for Cause-Marketing
Partnering with commercial businesses can be a great way for nonprofit organizations to fundraise. Over the past decade, cause-marketing relationships between nonprofit and commercial businesses have grown exponentially in popularity. Campaigns like Yoplait Save Lids to Save Lives, Dove’s Campaign for Real Beauty, American Express’ The Members Project, Nike’s Livestrong Bracelets, and The Gap’s Product Red are all great examples of long-term cause marketing relationships that have helped generate millions of dollars for their respective charities.
These collaborations are by no means limited to large, multi-national corporations and charities. Over the last five years, our law firm has worked with many nonprofits to help facilitate successful cause marketing campaigns with local and national businesses.
While cause-marketing campaigns can be structured in a number of different ways, the most traditional and regulated model is a commercial co-venture. A “commercial co-venture” is when a person or entity that regularly and primarily is engaged in a commercial trade or business conducts an advertising or sales campaign in which the purchase or use of goods, services, or any other thing of value will benefit, in whole or in part, a charitable organization or purpose (“charitable sales promotion”). For example, a business may agree to contribute 20 cents of every product sold to ABC Charity. In return, the business advertises that every purchase of the product will result in a donation made to the charity, which may encourage consumers to purchase from the business.
Since states customarily regulate the solicitation and use of funds for charitable purposes from residents in their state, many states have also enacted specific statutory provisions governing the methods, procedures, and requirements for businesses and nonprofits to engage in a commercial co-venture campaign with residents in their state. Because state legal requirements may vary markedly, nonprofits and businesses are well advised to retain experienced legal counsel to help ensure compliance with these diverse provisions. Four guiding principles for all commercial co-venture relationships are as follows.
- Put the agreement in writing, and talk to a knowledgeable attorney about necessary provisions. Several states require that the commercial co-venture relationship be memorialized in a written contract before a campaign can be conducted. The contracts not only must comply with each state’s specific contract requirements, reporting, and other compliance issues, but also must address important intellectual property licensing and usage considerations. Both parties should also develop review procedures to ensure that public communications beneficially portray their organization.
- Make sure all advertisements clearly describe how the campaign will benefit the charity. Include both the name of the business and the name of the charity on any ads or other public communications related to the campaign. In all ads stating that a sale will benefit a charity, be sure to disclose how the charity benefits from the sale, such as whether a specific percentage or portion of the purchase price will be given to the charity. Clearly state any minimum or maximum donation amount, as well as the start and end dates of the campaign. These are all common requirements for compliance with state laws.
- Develop and maintain record-sharing procedures during and after the campaign. The business and nonprofit should agree to record-sharing procedures to ensure that the financials are being accurately reported. Several states require the business to maintain specific records and provide them to a state agency upon request. Many states also typically require a business to provide a final accounting to the charity, as well as to maintain this accounting for three years after the close of the campaign.
- Keep up with registration requirements. Some states require the charity, the for-profit entity, or both to register with a state agency or to file documents with the agency before beginning a commercial co-venture campaign. These registrations usually have to be renewed once a year. Talk to a knowledgeable attorney about registration requirements, and be prepared for filing deadlines.
Remember, raising money for a charity should be exciting, not daunting. If you have questions about commercial co-ventures or other cause-related marketing campaigns, relations or compliance with state laws, please contact one of our attorneys at 312.626.1600, or [email protected], or visit us on the web at www.wagenmakerlaw.com.
Ryan Oberly is a partner at Wagenmaker and Oberly who focuses his practice on the diverse issues affecting tax-exempt organizations including public charities, private foundations, trade associations, social clubs, tax-exempts’ for-profit subsidiaries, and select social enterprise ventures.