Corporate Partnerships & The Law: Registration & Reporting Requirements ⚖️
This is the second-part of a four-part series on the four key legal issues you - my readers! - requested guidance on in the Selfish Giving / Accelerist Partnership Law Survey you completed last spring.
Advertising Disclosures [Released 10/02/19]
Registration & Reporting Requirements
Contracts [Released 03/04/20]
UBIT [Released 06/21/20]
Today, our legal expert, Karen Wu of Perlman & Perlman, is answering your questions on registration and reporting requirements. Karen has broken the questions into two groups: “Company” questions and “Charity” questions.
The FAQ’s below were taken directly from the survey - although Karen and I modified some of the questions for the sake of clarity and completeness.
Company FAQ’s
1. Our company is conducting its first ever cause marketing campaign. I heard that we may need to do some kind of state registrations. How do I know if I need to register, what does it entail, and how long will it take?
One of the most popular types of cause marketing campaigns is a charitable sales promotion in which a business advertises that the purchase or use of certain goods or services will benefit a charitable organization (e.g., “For every T-shirt purchased in July, ABC Company will donate $5 to XYZ Charity.”) A company that conducts this type of charitable sales promotion is regulated under state charitable solicitation laws as a “commercial co-venturer” (“CCV”). [1]
State charitable solicitation laws as well as consumer protection laws regulate cause marketing activities, and aim to protect against deceptive or misleading solicitations and advertising. The regulations are also intended to help ensure that charities actually receive the funds in accordance with the advertised terms of the promotion. There are more than 25 states that specifically regulate charitable sales promotions. The requirements vary by state, and may include registration and campaign reporting, mandatory contract provisions, and advertising disclosures.
The registration process entails a few key components: (1) registration of the company; (2) filing of a surety bond; (3) filing of the contract and/or solicitation notice; and (4) filing of a campaign report.
The cost of obtaining CCV surety bonds is approximately 1-2% of the face value of the bond.
Below is a chart that outlines the state registration and reporting requirements applicable to for-profit companies conducting charitable sales promotions:
Commercial Co-venturer Registration and Reporting Requirements
Companies must register and/or undertake other reporting requirements in the states listed above if it is conducting the charitable sales promotion in any of those states. This generally includes any states in which the company is selling the applicable goods or services (e.g., in-store sales), as well as any states in which it is actively advertising the promotion (e.g., TV, mail, radio). Charitable sales promotions that are conducted online are subject to a special jurisdictional analysis, explained further in Company FAQ #2, below.
Companies that are registering as a commercial co-venturer for the first time should give themselves about 1 - 2 months prior to the start date of the promotion to take care of the registration and contract filing requirements.
Footnotes for Question #1
[1] The term “commercial co-venturer” is defined under each states’ charitable solicitation law, though many of the state law definitions are similar or identical to that of other states. New York uses a fairly common definition of “commercial co-venturer”: “Any person who for profit is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds or any other thing of value for a charitable organization and who advertises that the purchase or use of goods, services, entertainment, or any other thing of value will benefit a charitable organization.” New York Exec. Law § 171-a(6).
2. I operate a small e-commerce business in Massachusetts that sells clothing online, and would like to run a promotion in which the company will donate $5 to a local, nonprofit homeless shelter for every special edition T-shirt sold through our website. Does my company need to register nationally? What, if anything, does the nonprofit need to do?
Most state laws do not explicitly address whether fundraising activities conducted on the internet (including cause marketing campaigns) trigger the state’s fundraising registration and reporting requirements. However, the National Association of State Charity Officials (NASCO) has issued non-binding, written guidance to assist state regulators and the charitable fundraising community in determining when a company or charity must register in connection with its online fundraising activities. This guidance, published in March 2001, is called The Charleston Principles: Guidelines on Charitable Solicitations Using the Internet (the “Principles”). The Principles state that they apply to charitable sales promotions as well as solicitations for charitable contributions. [2]
As a preliminary matter, a company’s cause marketing promotion must cause the company to meet a state’s definition of “commercial co-venturer” (see Company FAQ #1). Even if the promotion would cause the company to be a CCV, the state must still have “minimum contacts” with the company to require the company to register. “Minimum contacts” is a constitutional concept referring to the minimum amount of contacts necessary for a state to exercise jurisdiction over a person or entity. The Principles reflect the states’ interpretation of how to apply the minimum contacts principles in determining when state registration and reporting requirements apply to internet solicitations. The circumstances that would require registration of a commercial co-venturer in a state as a result of conducting an online charitable sales promotion are outlined below:
(1) Entities domiciled within the state: If a company is primarily operating from a particular state, and conducting an online charitable sales promotion, it must comply with the registration requirements of that state, if any. In the above example, the company and charity must register in Massachusetts because: (3) the company and charity are headquartered in Massachusetts [2], and (2) the company is advertising online that it will donate $5 to a local nonprofit homeless shelter for every special edition T-shirt sold on its website.
(2) Out-of-state entities whose non-internet activities would require registration in the state: If an organization is targeting its advertising of an online charitable sales promotion at one or more particular states, it will need to register in those targeted states. For example, if the company mails print catalogs into all 50 states, and the catalogs feature this promotion, the company and the nonprofit will each need to be registered in all applicable states [4], even though the purchase itself must be made online. [5] Social media and email marketing strategies can involve geo-targeting, which is a way to target users by their location, including countries, states, and zip codes, so consider whether your company’s marketing strategy involves targeting of potential customers by state. Some companies conducting charitable sales promotions target users on social media based on other characteristics, such as age or gender, but not based on their location – this type of social media strategy would not, by itself, trigger registration.
(3) Out-of-state entities receive contributions from the state on a repeated and ongoing, or substantial basis through or in response to the website solicitation: According to this prong, if a charity is receiving a significant number of contributions or a significant total dollar amount of contributions online each year from a state’s residents, the charity should register in that state. This prong can be a bit challenging to apply because few states have specified in their laws how many donations or what total dollar amount of donations received online from the state in a year would constitute “repeated and ongoing” or “substantial” for purposes of registering in the state. [6] Moreover, this prong discusses the receipt of online donations by a charity, not sales proceeds by a for-profit company. Nevertheless, companies can apply this guidance in good faith by considering its sales forecasts (e.g., projected sales and donations to be generated) in order to determine whether it should register in any state. In the example above, if the company expects to sell a relatively small number of the special edition T-shirts through its website to residents of any state other than Massachusetts in a given year, and is not otherwise targeting its advertising of the promotion at any other states, it is unlikely that the company or charity will need to register in any state other than Massachusetts in order to conduct this online promotion. If the promotion will continue for an extended period of time, the company should periodically monitor its sales in each state to see if either the per-state online sales volumes or the amount of donations being generated for the charity based on online sales to any state’s residents are sufficient to justify registering.
For a comprehensive discussion of online charitable fundraising compliance, read this article.
Footnotes for Questions #2
[2] Section III.B.5 of the Principles states the following: “Solicitations for the sale of a product or service that include a representation that some portion of the price shall be devoted to a charitable organization or charitable purpose (often referred to as ‘commercial coventuring’ or ‘cause marketing’) shall be governed by the same standards as otherwise set out in these Principles governing charitable solicitations.”
[3] In most cases, if a company is registering in a state and filing a contract with a charity, the state will expect that charity to also be registered in that state. The Principles suggest that there may be circumstances when a company is required to register in a state because it is operating a website through which contributions are solicited or received for a charity, but the charity is not required to register in the same state because it does not independently meet the criteria that would require registration. See Principles § III.B.4.
[4] The registration and reporting requirements is summarized for businesses in Company FAQ #1 and for nonprofits in Charity FAQ #1.
[5] Companies may want to select charities that are already fundraising nationally to be their beneficiary in any national campaign because a small, local charity that otherwise does not fundraise nationally may find it burdensome to comply with multi-state fundraising registration and reporting requirements to benefit from one cause marketing promotion.
[6] Three states, Colorado, Mississippi, and Tennessee have enacted regulations that specify the number of donations or total dollar amount of contributions received online from a state that constitute “repeated and ongoing” or “substantial” for purposes of registering to solicit in the state. Details on these thresholds are available here.
3. Our company’s cause marketing campaign launched last week and we just found out we are supposed to register in certain states as a commercial co-venturer! Are we going to face fines or other penalties?
While states generally have the statutory right to impose late fees and penalties for late registration (and often do with respect to certain types of fundraisers, like telemarketers), they have not actively exercised this right in the context of CCVs. Companies that learn of the registration and reporting requirements after a promotion has begun, or are late in registering or filing a CCV contract due to other logistical reasons, should register and file the contract as soon as possible.
Some state agencies may issue a notice to one or both parties when (a) a contract is filed or disclosed by one party, and the other party is not registered, or (b) a campaign report is not filed by the filing deadline. The notice will typically state that their office has received information about a CCV contract, and that one of the parties is not registered to conduct the promotion, and must register. Some states may also include a warning that the agency has the right to issue fines or civil penalties upon any entity that is soliciting without being properly registered.
To avoid fines and penalties, both parties should have a clear and coordinated understanding of the registration and reporting requirements applicable to each promotion, and be prepared to file all necessary documents in the relevant states by the filing deadlines.
In addition to these general principles, here are a couple of state-specific considerations to be aware of:
Hawaii: In 2018, Hawaii issued a notice as part of the launch of their new online filing system stating that commercial co-venturers that failed to comply with its filing requirement will be subject to fines.[7] Although I am not aware of any company actually being assessed a fine by Hawaii, the state has affirmed their authority to impose fines on non-compliant CCVs.
South Carolina: Companies need to ensure that campaign reports are timely submitted in South Carolina, as the state regularly imposes fines (which accrue daily) for late submission of campaign reports. [8]
Footnotes for Question #3
[7] Hawaii Revised States § 467-5.5(d) states the following: “A late filing fee of $20 shall be imposed on a commercial co-venturer who fails to file a written consent as required by subsection (b), unless it is shown that the failure is due to reasonable cause, for each day during which the violation continues; provided that the total amount imposed under this subsection shall not exceed $1,000.” HRS § 467-5.5 states the following: “When the attorney general finds that a commercial co-venturer has violated or is operating in violation of this chapter, the attorney general may impose an administrative fine not to exceed $1,000 for each act that constitutes a violation of this chapter and an additional penalty, not to exceed $100 per day, for each day during which the violation continues.”
[8] Under section 33-56-70 of the South Carolina Solicitation of Charitable Funds Act, commercial co-venturers are liable for “an administrative fine not to exceed ten dollars for each day of noncompliance, with a maximum fine of two thousand dollars for each separate violation.”
Charity FAQ’s
1. Our charity was asked to be the beneficiary of a company’s charitable sales promotion, but we’ve never engaged in a cause marketing campaign before. What do we need to be aware of before we proceed with this opportunity?
A charity that is named as the beneficiary of a national charitable sales promotion must register in all applicable states to solicit contributions. [9] For most charities, registering “nationally” to solicit contributions means registration in about 38 states. [10] In addition to registering annually, charities have additional state filing obligations associated with each CCV contract, which are summarized in the chart below.
Charity Filings for CCV Promotions
Registration and certain contract-specific filings must be completed before the promotion begins, so charities should plan ahead to ensure timely compliance. Charities that are registering nationally should build in a lead time of about 2 - 3 months to prepare and submit their registrations and contract filings.
Footnotes for Question #1
[9] Although charities are often not actively involved in marketing these promotions, the states nevertheless view the charities’ role of being the beneficiary of a charitable sales promotion as a form of solicitation by the charity that triggers registration.
[10] For a chart of all the states that have a registration requirement for charities, click here. A few states do not have any charitable fundraising registration or reporting obligations. Specific state statutes may also have exceptions, limitations or exemptions to the registration/filing requirements that are not reflected in the chart (e.g., many states exempt certain religious or educational organizations).
2. Our nonprofit is already registered nationally, and discloses all of its CCV partners as part of our annual charitable solicitation registration renewals, so we should be all set with our CCV-related compliance, right?
As noted in Charity FAQ #1, if a charitable sales promotion is being conducted nationally, the charity must also be registered in all applicable states to solicit contributions, and undertake certain promotion-specific filings and disclosures. It’s important to note, however, that not every CCV contract should be disclosed in every state. Company FAQ #2 briefly explains when states have jurisdiction over a fundraising activity. Charities (in coordination with their corporate partners) should only report CCV promotions in states where the promotion is actively being conducted. Some retailers don’t have stores in all 50 states, or only conduct their promotions in specific retail stores in select states. Some companies may even strategically exclude stores or avoid marketing the promotion into certain states to avoid those states’ registration and reporting obligations. As such, it’s important that the parties have a clear and common understanding of exactly which states a particular promotion is being conducted in.
If a charity reports a company as its commercial co-venturer in a state where the company is not conducting the promotion and is not registered, the state may issue a deficiency notice to both parties on the assumption that the promotion is taking place in the state. Some states like Mississippi and Hawaii are quite vigilant in cross-checking that both parties are in compliance with respect to any promotion.
3. Our charity was approached by a start-up company that wants to conduct a cause marketing campaign to benefit our organization. When we told them they may need to register with certain states and get bonds, they were concerned about the cost and burdens of compliance. We don’t want to lose the opportunity to build a partnership with this company. What can we do?
While charities do need to ensure that their partners are in compliance with respect to any promotions conducted for their benefit, [11] it’s understandable that they don’t want to scare new potential corporate partners away with information about regulatory obligations, or be in the awkward position of giving them legal advice.
Here are three ideas to help you move the conversation forward with companies that are new to cause marketing:
(1) Communicate directly about what CCV registration entails – registration of the company, contract filing, and/or campaign reports in up to seven states. The charts in this article may serve as a practical guide of the components and timing of the registration process.
(2) While the company can find the registration forms on state websites and handle the filings by themselves, there are also several third party vendors that provide registration services for commercial co-venturers. An experienced vendor can help ensure that the process is done quickly and accurately, and that the various state filing deadlines are met.
(3) Have alternative campaign ideas ready to share with companies that are not prepared to undertake the registration requirements applicable to charitable sales promotions. This may include other types of activities that drive donations, such as customer donation campaigns or social media campaigns (in which a donation is made for each social media action taken). Contests and other creative customer action campaigns are popular ways to increase awareness for a charity’s mission while generating donations and/or public engagement. Showing companies that you are ready and willing to work together to creatively find win-win solutions is critical to a robust corporate partnerships program.
Footnotes for Question #3
[11] See Charity FAQ #2 about how one party’s non-compliance can trigger compliance deficiencies on the other party.
The information provided in this post does not constitute legal advice to any individual or entity, and is not intended to substitute for legal counsel.
