Commercial co-venture arrangements are a great way to blend philanthropy and commercial activities, but the parties in such an arrangement need to be mindful of the rules in each of the 50 states that govern commercial co-venture arrangements. If a person or for-profit company joins forces with a charitable organization to benefit the charitable organization, usually via donations, the parties have entered into a commercial co-venture arrangement for a charitable sales promotion. The person or for-profit company that entered into the arrangement is known as the commercial co-venturer. A well-known example of a commercial co-venture arrangement is between Apple and (RED). For 12 years, Apple has been selling red products, and a portion of the proceeds from such red products are donated to (RED).
If you’re entering into a commercial co-venture arrangement, there are a number of factors that need to be considered for the arrangement to be in compliance with state laws. All 50 states have laws pertaining to commercial co-venture arrangements, some more complex than others. State laws can control the contents of a contract, advertisement disclosures, and state registrations and filings (both pre and post transaction).
Some states require that the commercial co-venture contract be signed by two of the charitable organization’s officers and that the contract list the organization’s registration number. New York requires that the NY Attorney General’s address be included in the contact’s notice provision related to the cancellation of the arrangement.
In addition to states controlling your governing contract, a number of states require the commercial co-venturer to register as such and/or to file the governing contract with the state. For example, Massachusetts requires the commercial co-venturer to register with the MA Attorney General, file a $25,000 surety bond, and file the governing contract within 10 days of executing the governing contract, but prior to the commencement of the sales promotion.
Many states explain the specific disclosures that are required to be in your advertisements for the charitable sales promotion. If your charitable sales promotion will be active in New York, your advertisement must disclose the amount per unit of goods or services purchased, or used, that is to benefit the charitable organization. The amount per unit may be expressed either as a dollar amount or as a percentage of value of the goods or services purchased or used. If the exact amount or percentage is not known, you must include an estimate.
Five states also have post-charitable sales promotion filing requirements. A few states require only that you maintain records of the charitable sales for three years after the completion of the promotion. Other states, such as South Carolina, require that you and the charitable organization file a joint financial report for the promotion.
There is only one exception in which no state laws regulating commercial co-ventures apply to such an arrangement. If you, as the commercial co-venturer, do not receive any proceeds from the sales of goods or services benefitting the charitable organization and the proceeds go directly to the charitable organization, then you are not in fact a commercial co-venturer and the state laws are not applicable.
If you are considering entering into a commercial co-venture arrangement, or have concerns about a current commercial co-venture arrangement, please reach out to your legal counsel to ensure you are in compliance with all applicable state laws.