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The Legal Implications of Doing Good: Understanding the Law of Cause Marketing and Commercial Co-ventures

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The Legal Implications of Doing Good: Understanding the Law of Cause Marketing and Commercial Co-ventures

To increase sales as well as goodwill, many companies like to partner with charitable organizations to market their products. One common marketing plan is the commercial co-venture, which involves advertising that the company will donate a portion of sales to a charity. This highly-regulated area of law has numerous requirements, from contractual and advertising obligations to registration and bonding. In this program, you will learn best practices for running successful charitable marketing campaigns, as well as the difference between commercial co-ventures and other cause marketing efforts. You will also learn about applicable state laws and how to problem solve for compliance issues in commercial co-venture campaigns.

Presenters

Rob LaPlaca
Partner
Verrill Dana LLP

Transcript

Rob Laplaca: Hi, this is Rob Laplaca. I'm an attorney at the law firm of Verrill Dana in Westport, Connecticut. And today we are going to be talking about the legal implications of doing good, understanding the law of cause marketing and commercial co ventures. I have about 20 years experience in this area and it is a highly regulated area. And it's one of those areas where the brands who want to do something to do good and have sales promote motion to promote and benefit a charity may not realize that there are so many regulations in this area that need to be complied with in order to effectuate a very good campaign. So let's go through some of those areas. What I want to go over today is mainly commercial co ventures, what they are, and how to legally handle them. Go over some of the other regulated entities in this area, talk about what the charities obligations are, and go into then some other forms of cause marketing involving sweepstakes, or raffles, and other things that can be done to do good to benefit a charity.

  So this area, really just for a little background, it came about when the Statue of Liberty was being refurbished back in 1983 and American Express decided to help raise money for this project. And they advertised that they would provide a certain amount. It was a 1 cent for each credit card transaction, a dollar for each new account, and a few other areas where people could make a purchase on AMEX, and that would trigger a donation to the restore Statue of Liberty campaign. And this ended up raising about $5.6 million for the restoration of the Statue of Liberty, and increased AMEX card use by about 27%, and about 45% for new cards issued. So by doing that, AMEX showed that by doing good, they could help a charity and benefit themselves also.

  So since then, that has been somewhat of a model, and the cause marketing was somewhat started to be recognized at that time. So cause marketing is a broad term, generally when a brand wants to do something where they promote a charity. And it could be in the form of product sales, which would be commercial co ventures, and like I said, it could be sweepstakes or raffles, it could be accepting donations at checkout, it could just be a flat donation that they're making to the charity, or sponsoring an event, or doing something to raise awareness of the charity through their employee engagement. So many different ways, many creative ways have come up for a company to help a charity. And let's start with the most regulated one, which are commercial co ventures.

  The basic definition of a commercial co venture is where the brand advertises, if you buy this, we'll donate that. It's really that simple. It's an advertising marketing campaign where the brand advertises that if you buy our widget, we will donate X amount to the charity. And there's one little hitch in that in terms of the definition of a commercial co venture that you always have to keep in the back of your mind, is that three of the state there are... Let me back up. There are approximately 23, 24, 25 states that have laws that would regulate commercial co ventures. And three of them, which I will call the goodwill states have a definition in their statute that's broader enough, that it doesn't necessarily include the buy this portion, that it could include acts that do not involve an actual purchase. And those statutes have language such as were the company for profit, it conducts, promotes, produces, underwrites, arranges, or sponsors a performance event or sale to the public of a good or service, which is advertising conjunction with a charity.

  So therefore the acts of a performance or an event, very broad term, that will benefit a charity could get you into the area where you need to consider compliance with those quote unquote goodwill states. Those are Alabama, Massachusetts, and South Carolina. As we'll see later in this program, that the implications are important because of the six states that require a registration of a commercial co venture, Alabama, Massachusetts, and South Carolina are three of those six states. So that is why it is particularly important to consider whether your promotion is a commercial co venture, even if there might not be an actual purchase or sale involved.

  Let's just go over some general terms you need to know for commercial co ventures. There is the charity, also known as a nonprofit organization. They receive the donations. They receive the donations from the brand, from the commercial co venturer, the company that's selling the goods or service. The company is making the donation to the charity. It is not the consumer, so you can't advertise that the consumer is going to be making a donation to charity when the object is a commercial co venture. And you advertise that when you the consumer make a purchase, we the brand will make the donation to charity. So the brand gets the benefit of making the donation, not the individual consumer.

  The commercial co venture is the charitable sales campaign, and we need to also consider what's called the charitable trustee. And that could be the brand itself in some states that have statutes regulating commercial or charitable trustees, and that's the entity that is holding money in trust for the charity. So think of it like the brand's says, if you buy this widget, we will donate $1 to charity. So when you pay $5 for the widget, that $1 is in effect being held in trust to go eventually to the charity. And that's relevant for the registration, again, purposes of the state of Illinois, which requires registration for charitable trustees. And that would include a commercial co venture situation.

  So I'm talking about a lot of different regulations that come up when doing commercial co ventures, but generally they could be boiled down to a number of requirements that are easy to understand. The charity itself needs to be registered as a charity in all of the states where the promotion is going on. Approximately 40 states require charities to register, just register in that state as doing business as a charity. The other requirement that you'll need to have for a commercial co venture is, is a written contract between the charity and the company, the brand selling the goods.

  There are mandatory advertising disclosures that the statutes require. Statutes require that the brand maintains an accounting of the sales and the donation for at least three years, and as I mentioned, you have registration or bonding requirements in six states with a caveat. The six are Alabama, Hawaii, Illinois, Massachusetts, Mississippi, and South Carolina. And California currently has a registration requirement, but there's a workaround which I will explain to you how you could get around having to register in California.

  So let's talk about these general requirements. Let's talk about the contract requirements. The statutes are quite specific and what I'm explaining to you here, just so you know, there's, like I said, there's about 23 states that have commercial co ventures statutes, and they're to different degrees of specificity. So what I'm explaining is if you want to do a nationwide promotion, you're going to have to know the requirements in all of these states. So therefore, what I'm going to explain to you now is taking all of those requirements and complying in order to have a promotion that's nationwide. It's possible that if you're just limited to one or a few states, all of these requirements that I'm going to go over may not necessarily apply in those states. But if you want to do a nationwide promotion, these are the total amount of things you'll need to be doing to make sure you're complying with all 23, let's say state laws.

  First in a contract, you need to identify what the specific item is, be very clear. Companies sell a lot of different products. It can't just be general and say our products, specify that it is a specific razor, or a specific type of tissue paper, or whatever it is, be very specific on the size, and type, and volume of the item that's being sold that's going to trigger the donation. You're going to have, this is a promotion, so it's a time limited marketing event. So you're going to have specific sales dates, from April one through April 15th when you purchase this item, we will make the donation. It's a date specific type of event.

  Mention in the contract the eligible states. Will it be throughout all 50 states in the United States, or will it just be some limited amount of states? You want to mention how the charity's name will be you used by the brand. And this is important because you want the charity to give the brand permission to use the charity's name, maybe the charity's logo, but however, whatever permission the company's going to get in using the charity's name, logo, et cetera, that needs to be spelled out in a contract so you have the permission and the legal right to do so. May end up with advertising review to some extent, but generally some kind of license to use their name and logo.

  You need to be very specific in terms of the per unit percentage or the per unit dollar amount to be donated. So if it's purchase a razor, then we will donate either 10% of the purchase price or $1 of the purchase price will be donated to charity. You need to be specific. And you can't say things like 10% of the net profits from the sale of the razors, because that is not something that's generally known and a consumer and even the charity may not necessarily know how much 10% of the net profits actually amounts to. So percentage or dollar amount of the purchase price is the proper way to make that disclosure, both in the contract, and as we'll talk about later, in advertising.

  You'll want to go over and be specific in the contract if there's any minimum or maximum donation. These help set the parameters, help expectations for both the charity and for the brand to understand what is expected to be donated at the end of this campaign. So they need to be in the contract. Georgia, New Hampshire, and New Jersey, their statutes say, "Make sure you put in your contract that our laws apply." So if the promotion's going to be running in those three states, you need to cite the statute and say in the contract that those law apply. New York statute is specific that you need to say in the contract that the charity has 15 days after the signing of the contract in order to cancel this agreement. So that needs to be in the contract. And a number of states require signatures from two officers of the charity on the contract to make that a valid contract.

  As I mentioned before, California is technically a registration state, but you can work around that with, currently, by putting in your contract the provisions, basically that donations will be made on a rolling 90 day basis. The first donation will be made within 90 days of the promotion, it will continue to be made every 90 days, and the final donation will be made 90 days following, within 90 days following the end of the promotion, and with each donation and accounting will be provided. So if that is something that you're able to do, something you're able to agree to in terms of timing, you could avoid registration in California by having those requirements in your contract.

  Next let's look at the ads. The ads somewhat follow what you're going to put in your contract. And the states require that any advertising about the promotion, you say certain material items. These are, once again, the per unit percentage or dollar amount to be donated, the specific amount to be donated, whether there's any minimum or maximum donation, the geographic location of the promotion, the time period, and the others are found in the statutes and in practice may not be necessarily disclosed all of the time, and it's not generally an issue that states raise any problems with. You do want to identify the charity best practice, to identify their address in the advertisement, at the very least a link, if it's an online type of promotion, a link to their website so people could see that this is a legitimate charity.

  Massachusetts in their statute mentions putting in the advertising how the funds are to be used and identifying that you the brand are a paid fundraiser. You may be able to have something in the ad about how the funds are to be used. The paid fundraiser is a little bit of an anomaly because you're a commercial co venturer, you're not a paid fundraiser. So I always questioned why that's in the statute. And you could also disclose that to the consumer, that this is not a tax deductible event for the consumer, as I mentioned, the donations being made by the charity. So typically what you're going to see in an ad for a commercial co venture is that the brand will donate to charity $1 for each widget bought in the United States between let's say December 1st, 2021 and March 1st, 2022, the maximum donation will be $100,000, for information see www.charity.org. That's typically what you see in an advertising disclosure for a commercial co venture.

  Next, as I mentioned, you have to deal with registration and bonding for a nationwide promotion. And I mentioned the six states that have those requirements. Alabama is going to require a bond, Hawaii, Illinois is the charitable trust. Massachusetts requires a $25,000 bond. Mississippi is only taking registrations online, and South Carolina is the other registration state, without California, assuming that is typical, you'll have the rolling 90 day donation provision in your contract. There are some timing issues with regard to the registration. The statutes in Alabama say file it 15 days before the promotion, Hawaii, 10 days, Mississippi, seven days, and South Carolina, 10 days. So there's not a uniform deadline that you could do this, but typically you want to be about two of weeks out to do your registration with these particular states and you'll be in good shape.

  As I mentioned, California currently has a quasi registration requirement, let's say that you could work around. But they recently passed, in October of this year, what's called AB 488, that's the bill that was passed. And it's going to be effective on January 1, 2023, to give the state legislators time to come up with regulations to help implement the new laws. It is a very extensive law with regard to their charitable laws. But for our commercial co-venture purposes, it is going to have a new registration requirement that is not going to have a specific workaround. And what the statutes says is that if you have donations to more than six charities throughout a calendar year, online promotions that will donate to a charity during this calendar year, if there's more than six, then you will need to register for the seventh one.

  So right now that's what the rule is going to be in California, starting January 1, 2023, as you could see, it's a little cumbersome in terms of the more than six issue there and how that's supposed to be worked out. So hopefully that's something that gets worked out in the regulations in the meantime, but just keep that in the back of your mind that starting in 2023, there's going to be a registration requirement that you need to consider in California that's more onerous than the current registration requirements. So there are other regulated entities in this cause marketing world, besides just the commercial co-venturer. And the bottom line is if you're just a brand that wants to help out a charity by having a sales campaign, be a commercial co-venturer, comply with the requirements that we just talked about.

  And essentially you want to stay away from being these other regulated entities because these other regulated entities are more of the type that are, that's their business to be this type of company. So what they are, are a first there's the professional fundraiser also called a paid solicitor in some states. And this is the type of company that gets paid to solicit contributions. So this is their job, essentially, they're going to make money for the act of soliciting donations, not make money by selling a product, but make money. And they're going to take, let's say a cut of the donations is the simplest way to put it by either in conjunction with a company, doing your commercial co-venture or in some other manner, raising donations for a charity. It spends more than just the area of commercial co-ventures as you could understand.

  So if you're going to be this type of entity, then you have the requirements of registering on an annual basis, posting a bond, filing a contract that you have with the charity in terms of how you're getting paid. You're going to have record retention requirements, and you're going to have to file reports in many states. Another regulated entity is called the fundraising counsel where you, the company, are now not soliciting the donations for pay, but you are advising the charity on a charitable campaign and you're getting paid for it. So in that situation, you're also going to have registration, bonding, record keeping and filing requirements if you're getting paid for helping in the concept of getting donations for the charity.

  Last I mentioned here, the charitable trustee, which as I mentioned before, is most relevant in Illinois for a brand that's doing a charitable sales campaign. And that's a situation where you are a company that is holding money on behalf of a charity that you promised to pay to the charity. And in Illinois, you should file if you're doing a commercial co-venture, if you do this on a regular basis, many states have charitable trustee statutes that you would need to comply with. So I having the slides here, just some examples of how this would all play out and how you need to think through the issue of am I a regulated entity more than the commercial co-venturer. So for instance, if you had a cooperative program where the sponsor is holding a concert and all sales are going to charity, but in this scenario, you're having the charity pay for the venue.

  So the charity's now chipping in. They have to contribute something in order to get the benefit of the donations that will be made from the sales of the event. So the in and of itself, the sale of concert tickets, if you're the sponsor and you're selling concert tickets and those money for those tickets are going to the charity, that would be a commercial co-venture. But now consider the fact that, like I said, if you're going to have the charity paying for the venue, now there's some benefit, monetary benefit coming back to the sponsor of the event. They're not going to have to pay for the venue as normally would. So therefore, would the sponsor be considered a professional fundraiser because they're soliciting donations by having a concert and they're getting paid for it at least indirectly from having a free venue that's being paid for by the charity.

  Same as fundraising council concept. If they're not necessarily getting the direct payment from the charity, are they getting an indirect payment or other 'consideration' by structuring the event in this way? I point this out that could possibly be an area where you could turn into a professional fundraising or a professional fundraising council that needs to be considered in these types of events. And that's what I want to get at, that there could be some indirect money coming from the charity where it's benefiting the sponsor of the event. Let's take a look at the website donation option that I mentioned here. Let's say you're having a 10% discount on online purchases and that the consumer can elect that the discount goes to the charity. But in this situation, the sponsor obtained a wholesale discount on the goods.

  So therefore they're getting indirectly a benefit. They're getting consideration by having the goods discounted from their wholesaler because of the event that they're running. And in this situation, it's a little more attenuated, but it's also one of those situations because the statutes in these areas are drafted so broadly, that is the sponsor receiving, "money or other consideration for running this program." And conceivably, they are getting other consideration because they're running the program and as a result of that, they got cheaper goods, they got the goods to sell less expensively for their payments for those goods. And therefore that was something that helped solicit the donation to charity.

  So this gets a little bit into the weeds, as you could see, but it is when you are structuring a program, you do have to consider whether there's any money, either coming from the charity or going to the sponsor itself that needs to be teased out in terms of is this some kind of commercial benefit that may make the sponsor a regulated entity, such as a professional fundraiser or a fundraising council. But be assured that your typical situation where the sponsor is just advertising, buy this we'll donate that, is just going to be the commercial co-venture. Now let's take a look at the charity. For commercial co-ventures, specifically, the charity is going to need to specifically be registered in all of the states that say, "If you are soliciting in our state, you need to register in our state as a charity."

  And even though the charity itself isn't directly soliciting in that state, when a brand is running a commercial co-venture promotion, a state may consider that as indirectly soliciting by the charity in their state and therefore, the charity needs to register as a charity in that state. And unfortunately for the charity, there's approximately 40 states that require registration. Good rule of thumb, if you're a brand and you're doing a promotion that's nationwide, you want to get a charity that is registered nationwide so you don't run into an issue with the charity not being registered in a particular state.

  And especially in the registration states where the company's going to need to register Alabama, Massachusetts, Hawaii, South Carolina, those states, the company is going to have to make sure that the charity is registered in those states because they won't accept the registration if the charity's not on their books. I bring up the exception for the charity registration in a particular state, it's called the Charleston Principles. And under these Charleston Principles that are not necessarily the law in every state, there's just some guide lines that a state may look at in terms of whether a charity should or should have been registered in that particular state. These principles apply to online solicitations.

  And some states may take the position that well, if it's only an online solicitation, so if the charitable sales promotion by the brand is only online that a state may say to the charity, "Well, you really don't need to be registered here because it is only an online solicitation." So something you could consider, if you have the issue of one, the charity not being registered in a particular state or throughout the country, and two it's an online promotion. You may be able to get away with relying upon the Charleston Principles to make the argument that the charity need not have been registered in that particular state. The charities, other obligations specifically with regard to a commercial co-venture are that they will need to file the commercial co-venture contract in three states.

  They will need to register the promotion in three different states, and they will need to file post promotion reports in two of the states that they had to filing requirements, New Jersey, New York and also in North Carolina. Now, I point out that these are separate filing and requirements for the charity itself. These are independent of the registration requirements for the six states mentioned for the commercial co-venturer, the brand that's running the promotion. These are situations that the charity has to do these items and for whatever odd reason, they are different states than the states that the company has requirements for their own registration. So just an interesting way this works and just shows again, that this is a complicated area that you need to get into the weeds sometimes to make sure that you're in full compliance with the law.

  Now, the other thing the charity needs to consider is they can't be a, let's say [inaudible 00:35:50] cheerleader for the promotion, because a charity is generally restricted from advertising on behalf of a company. If the charity's advertising on behalf of a company, they're now not doing a nonprofit type of activity, and they are getting into the realm of what for profit companies do. And the IRS will say to the charity, you are now acting as a business entity and not a charity. And therefore you should be taxed in some particular way, either for this amount or what would be considered unrelated business income tax. So to stay in the line of charity, as opposed to commercial entity, the things that a charity could do, or they could acknowledge the promotion. So what does that that mean? That means they could allow and give a license for the use of their name or the logo for the promotion to the brand.

  On their website, they could link or list the brand name. They could state that the brand is a sponsor of the charity. They could give a general description of the brand's products. But what they can't do is start making comparative advertising. We like brands, products better, basically because they make donations to us or the brands items cheaper than other companies products, or we endorse the brand's products. And you can't have a link from the charity page directly to the purchase page. These things start getting a little too close to a charity running in into the commercial realm, as opposed to the charitable realm. So rule of thumb, they could acknowledge the promotion, but they can't advertise the promotion. And as I mentioned, the consequences would one be monetary in the sense of the IRS may consider this unrelated business income tax and the charity could be taxed.

  And worst case scenario, if the charity could be called out and a state could say, "You know what, you're really a charity. You are now acting as a commercial co-venture or as a commercial entity. And we are going to revoke your charitable status." So serious consequences if the charity gets too actively involved in helping make the sales for the company. Bottom line is the best practices that the New York attorney general a couple years put out was what, make good disclosures so the consumer knows what's going on. Describe the promotion accurately and in enough details so they know what's going on. Make sure the consumer can identify what the donation amount's going to be. And a good idea is at the end of the promotion, just sort of the consumers know that this is all a legitimate enterprise.

  Let them know that we raised to a hundred thousand dollars for charity or whatever it happens to be. It's a good idea. It's good for the company. And it's good for consumers to know that these are going on. Few other just general concepts are, you want to make sure that your company matches up with the charity that goes well or compliments your charity. And it is a good idea to make a charitable sales campaign as part of an overall campaign that might involve other items than just a sale of products to benefit a charity. And that this is something that you're doing on a long term basis. These seem to be the most successful in terms of donations for the charity, confidence from consumers and profits, for the company.

  Talking about profits, I get asked all the time, can we just say all profits to charity or all net profits to charity, or a portion of the proceeds to charity? The bottom line is no, you can't say that. As I mentioned earlier, one of the specific requirements in many state statutes is to give the actual per unit amount. These disclosures really do not tell a consumer anything. I have no idea how much profits are being made by a company on a particular sale of one of their products. So telling the consumers that all profits from the sale of this item are going to go to charity is really not helpful for the consumer at all, and is not really identifying much at all. So avoid doing that. I Will mention now that when you do see that, and you do see it in certain situations, it's conceivable that you're going under the argument that commercial co-ventures are defined as charitable sales campaigns.

  Like I said, it's a marketing campaign. So it's a promotion that has a limited timeframe. So if you have a company that is always donating all profits to charity, they could conceivably advertise that all profits go to charity because they are not under the restrictions of the commercial co-venture laws, because it is not a limited promotion. It is a long term event. So that's my little tidbit there. The minimum and maximum donations are something that I mentioned earlier, and those need to be considered. The bottom line for minimum and maximum donations is that you can't have a maximum that is too low. So if you have a three month long promotion and you know that you're going to hit the maximum in one month, that's a bad idea because when you're advertising by this, we'll donate that, you basically know that, you know what, we're going to make that much anyway.

  And you have the problem of also, I now have this promotion being advertised for two months when nothing of the purchase is triggering a donation because the max has already been hit. So on the other side of the coin, if you have a minimum that's too high. So if your minimum donation is a million dollars, and you know that you're only going to sell a hundred thousand dollars, that would trigger a donation, you should not make that the minimum because once again, the purchase is not triggering the donation. So you need to find a good sweet spot in the area of you have enough of an area between the minimum and maximum, where there's a significant amount of the purchases that are going to trigger a donation. So when you advertise to the company or to the public, that your purchase is going to trigger a donation, you are being accurate and truthful in that regard.

  A lot of times companies may want to donate to a number of charities during one promotion. Unfortunately, the commercial co-venture laws are not set up to make that easy. And it would probably necessarily require, let's say you have six charities, six different registrations in each of the six registration states. So that could get a little costly. So if the company is thinking long term and they want to be able to have the availability to benefit many different charities throughout their sales campaigns or other collection of donations, a company could set up their own foundation, which is a charity in and of itself, which then the donation could be made to the charity, to the foundation who could then distribute to the different charities that it wants to benefit. So in that sense, the commercial co-venture would be between the company and its foundation, but keeping arms length distance between the two and advertising that the donation will be made to the foundation, which will benefit.

  And you can list a number of different charities that that may benefit where the money will eventually go from the foundation. As I mentioned, you have the area of the no purchase activities in the three states that I called the Goodwill states, Alabama, Massachusetts, and Mississippi, which do require registration. So you have a situation of like our page and for each like, we'll donate a dollar to charity. Is that a commercial co-venture? In most states, no, there's no sale or purchase involved. So what would not be a commercial co-venture. But given the broad language of the Goodwill states of conducting, promoting, or sponsoring event or performance that you say will benefit a charity, you could conceivably be in a situation where you are going to have to register in Alabama, Massachusetts and Mississippi.

  I also point out that the charitable trustee, State of Illinois, isn't specifically limited to commercial co-venture sales activities, but is just a situation where you are holding money for the charity. So you have to conceivably think that in my promotion that doesn't necessarily involve a sale, am I holding money back for the charity to be donated? And therefore, would I be a commercial trustee and have to register in Illinois? Beyond the commercial co-venture, as I mentioned, there are many other ways in the cause marketing arena to help get money to benefit a charity. Let's just go over a few of those. They're necessarily not as regulated as the commercial co-venture, but they're worth pointing out.

  Companies very often might want to have some kind of a chance promotion to benefit a charity. Companies can't do raffles. A true raffle situation where the consumer is paying, let's say $10 for a raffle ticket. Five of those dollars are going to the charity. The other five are going toward the prize at the end of the day, a 50/50 raffle at the end of the day, to go to the winner of the raffle. That is something that only charities can do, and they are regulated. They are regulated not only by particular state, but by particular county and sometimes by particular town. So if you're representing a charity that wants to do a raffle, they are generally permitted to do it, but it should be very local and you need to know specifically what the local laws are for doing that.

  Our company can do a sweepstakes, that's going to benefit a charity. So when you're advertising that when you consumer make a donation to charity of $1, we will give you one entry into our sweepstakes to win a separate prize, unrelated to the price of the donation. Now, this gets into a whole realm of sweepstakes law. And you need to consider the fact that you can't require someone to make a donation because that would be violating the "no purchase necessary obligation for a sweepstakes" which needs to be any game of chance cannot require any kind of purchase. So you can't require the donation, you could have them make a donation, give them an entry for the donation, but you need to have another free method of entry that does not involve a donation. And that free method must have equal dignity, same rights, benefits as someone who did make the donation.

  When you do get into the sweepstakes, you also have to consider, again, whether you're a professional fundraiser, are you now someone who is soliciting on half of the brand? Are you keeping any of that money if you're running your sweepstakes or any portion of it, or some consideration is getting back to you as a result of running the sweepstakes? Generally, you could say no, but if the situation is where only a portion of the donation is going to charity, and the other portion is being kept by the sponsor of the event, you will likely have the issue of being a professional fundraiser, because it seems to fit right within that definition. Again, if it's a donation and the donation isn't something where you're asking for the sweepstakes to show me proof that you've made a donation or on the website, the donation goes directly to the charity, but it's first going to you, the company and then going to the charity, are you now a charitable trustee who is holding money for the benefit of the charity?

  That's definitely possible. So you would need to consider whether you're going to be needing to register or otherwise comply with the charitable trustee laws. The simplest other option would be to make a flat donation to charity. The thing that needs to be one thing in terms of what we're talking about today, that needs to be considered is if you, the company are making a direct donation to charity, you can't say that the purchase of your products is triggering the donation. And I know the argument, well, we wouldn't have money if people didn't buy our products. So therefore, why can't I say that your purchase helps benefit the charity? It sounds too much like a commercial co-venture and the advertising makes it appear that this particular purchase by a consumer that you're trying to get will be something that triggers a donation when that's not true.

  So if you just make flash donations for charity as a company, that's a wonderful thing, but don't tie it into purchases in your advertising. Just say things like you proudly support the charity, or we've donated over $10 million to charity during the past year or something like that, but don't tie it into purchases. And specifically when you're mentioning the advertising of your flash donation. Again, companies you'll see either a checkout let's say online or in the store might accept donations that will go to charity. Very commonly done issues you may need to consider are its best if this money is not commingled. It's best if you're not actively soliciting the donation, mention that this is a option for the consumer to make this donation. And again, don't tie it into a purchase to make it into a commercial co-venture.

  You do have the issues of being a charitable trustee. Again, if you are co-mingling the funds or holding funds back, as opposed to just keeping them in the jar or going directly to the charity. And I do mention that new California law AB 488, does have a provision about accepting online donations and the need to register. So if that's something that is being contemplated by you, the company or your client, then you need to consider whether or not you're going to need to register. Once again, I think that has that same more than six charities requirement that triggers the registration. So lastly, I'll mention some other options that are available to companies that are typically done. They might co-brand an event with the charity. So they're having a golf event or something like that. And it's being run by brand and charity. Again, you need to consider not getting any money or other consideration from the charity except their assistance by co-sponsoring this event.

  When they are like the example I gave paying for the venue or paying for certain things, then you could be in a situation where you are a professional fundraiser, which is where you generally don't want to be unless that's your business. Again, don't do it in the connection with product sales. It'll get you into the commercial co-venture area. And if you don't want to be there and you just want to have a simple non-registered type of situation with event, with the charity, don't tie it into a sale of your products that are going to benefit the charity. And obviously, I list here just some other things. It's okay to license the charities logo when you can make the agreement with them to do so for the different events that you may want to do on behalf of the charity, public service campaigns, or just other events where the sweat equity is being given to benefit the charity and not just money.

  Those are items that are typically done and not as heavily regulated as the commercial co-ventures. So that's really the gist of this. I know the other items went a lot quicker than commercial co-ventures and that's basically because those other items are more. This is typically done and if you want to avoid the registration issues of commercial co-ventures or professional fundraisers of professional solicitors, then here's what you need to watch out for when you're doing these events. But the big area is the area where you have a true commercial co-venture. You're asking the public to purchase your product in reliance, upon your representation, that a certain amount from that purchase will go to charity.

  And when you do that, you have a commercial co-venture. You have an area that has a lot of regulation from your obligations as the company to register to the charities obligations, to file a contract and keep records. And you want to make sure that you're doing that all correctly. I mentioned you have the contract requirements. These contracts don't need to be complicated. I typically use a one page contract with the necessary provisions in it that could be easily agreed to, done quickly enough. The most difficult thing is getting two signatures from the officers of the charity, which are required to make this happen. But getting that to happen, making the necessary provisions in that contract and getting in on file in the six states is definitely manageable.

  It should not scare away you as either the attorney or with the charity itself, that there should be any particular problem with getting this done. It is manageable, but it's more the kind of thing of you need to know what the laws are out there so that you can comply with them. And not that they're so difficult that they need to scare either you or the company off from doing something, which in essence is a very good thing, beneficial for the charity, beneficial for the company. So I'm glad to have been able to go over this with you and you have my name and my number and my information if you have any further questions about this area, I'd be glad to go over these with you. I find this area quite interesting, and an area where a lot of times the companies that are new to this, and even sometimes the charities aren't really familiar with how intricate the regulations can be.

  So I understand that you may say, if this is all new to you, Rob, what am I supposed to do when a client comes and asks me a question or tells me what they plan on doing? I'm hearing things like commercial co-ventures, registration states, professional fundraisers, Charleston Principles, raffles, charitable trustees. There's a lot swirling around here. How can I break this all down when I hear a proposal from the client? Well, first thing you need to do is follow the money. When a client tells you, here's what we plan on doing, ask and understand how the money is changing hands. Is it going from the consumer to the brand, to the charity? Is it going directly to the charity from the consumer? Is the consumer not involved at all? So if you follow the money, you could then put it into the particular slot where that type of regulated activity would go.

  And the other thing I would say is the most important thing you could do in this area is to be upfront in the advertising. Suggest to your client that they're very specific in terms of what the customer needs to do, what the exact donation is going to be. It's not going to be net profits. It's not going to be a percentage of gross revenue. It's going to be $1 per candy bar. Disclose what's going to happen and then make sure your client does what they promise that the amount that's being promised to be donated is the amount that's donated. And at the end of the day, if there was some technicality that there was an issue with, at least if you were upfront and everything happened the way it was supposed to, then you'll be in the best position that you could be under the circumstances. So thank you and best of luck working in this area. Bye.


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1h 1m 53s

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