Cause marketing is a popular method to align your business with a worthwhile charity and to use that alignment to drive donations for the charity and increase your revenue.
It’s an effective method for increasing overall sales, typically lifting revenue by 18-23%.
However, note a significant caveat: if you engage in cause marketing, you can fall into a regulatory category known as commercial co-venturer, or CCV.
CCVs are subject to significant regulatory, financial, and tax regulations.
Many lawyers are not familiar with the conditions that create a CCV, so don’t kid yourself into thinking that if you are a CCV, your lawyer will catch it and know what to do.
We regularly talk to large corporations with sophisticated counsel who say, “Wait, I’m a what?”
In this blog, we're going to teach you three things:
First, if you sell online, we're going to teach you what logical tests to run to see if you’re a CCV in the eyes of state regulators.
Most of the rules relate to sales in specific states.
If you solicit donations from people in states like California and New York through online sales, you are subject to the regulations in those states.
Who sells online and doesn’t sell to California and New York or most other states?
Well – no one, right?
Second, we're going to give you a couple of examples to show you how the laws and definitions apply.
Third, we're going to teach you what to do if you are a CCV.
You're likely a commercial co-venturer if you...
If you are in an agreement, written or verbal, formal or implied, between a commercial, for-profit entity and a nonprofit organization, then…
You are a CCV.
If you are working with a nonprofit to raise funds for a charitable cause supported by a nonprofit organization, including linking sales of the for-profit company's products or services to contributions to the nonprofit then…
You are a CCV.
If your for-profit leverages your arrangement with the nonprofit in your marketing efforts, such as promoting the fact that purchases will support a charitable cause...
You are a CCV.
This area in particular (promoting the donations together with your product) triggers the most regulatory scrutiny because it is seen as serving your business’ direct interests.
If you operate in any of the 20+ states that require legal registration and compliance, including selling online to any customers in those states....
You are a CCV.
If you do ANY of these four activities, you are commercial co-venturer.
But note: you do not have to be doing all of those activities.
The laws are written so that the majority of cases in which a for-profit company raises money for a charitable cause results in requiring CCV registration.
How about some examples?
Mythical Beauty, a beauty ecommerce merchant, gives 5% of sales proceeds to an array of over 10 cancer awareness charities.
Mythical Beauty uses the cancer charities’ logos on their homepage, in the navigation bar, and at checkout.
Mythical Beauty sells their products nationwide.
Are they a commercial co-venturer?
Yes.
They are subject to regulations, registration, and reporting requirements in every state they sell products to that regulates CCVs – including online sales.
A B2B SaaS company (Mythical B2B SaaS) partners with a veterans' charity and solicits donations from their customers and prospect database to donate to the cause.
Mythical B2B SaaS uses the veterans' charity’s logo in their emails asking for donations as well as on their homepage, which includes presence in their navigation bar at the time of signing up for their product.
Mythical B2B SaaS sells their SaaS product nationwide.
Are they a commercial co-venturer?
Yes.
They are subject to regulations, registration, and reporting requirements in every state they sell products to that regulates CCVs – including online sales.
A landscaping business in Alabama (Mythical Landscaping) works with two different charities: one is a local nonprofit hunting awareness group and the other is a national charity.
Mythical Landscaping solicits donations when customers pay their bills on their account and contributes a portion of their sales to the hunting awareness group.
Mythical Landscaping uses the national charity’s logo in their marketing and customer account status emails.
Customers can also opt to donate a designated amount through Mythical Landscaping's services portal.
Mythical Landscaping sells their product only in Alabama.
Are they a commercial co-venturer?
Yes, in Alabama for sure – but probably not in other states.
Mythical Landscaping is subject to regulations and registration and reporting requirements in Alabama, including online bill paying and direct donations.
If donations come from outside of Alabama from non-customers using the portal, Mythical Landscaping will want to document and keep records of the donations to assure any potential inquiries from state regulatory bodies that they are forwarding donations to the national charity and the veterans charity, but they are probably not required to register as a CCV.
Before we detail the provisions necessary to be compliant as a CCV, we would be remiss if we didn’t steer you in the right direction.
Don’t try to do this compliance on your own.
If you are a business, we recommend working with someone like Change or working with a law firm that specializes in the filing and registration of these forms.
Don’t use your internal counsel (if you have one) or staff because the intricacies are significant and – more importantly – the filing and reporting cadence is critical.
It takes a methodical system to properly comply with the myriad of state regulations.
Also, using a law firm for the filings is possible, but it creates an added layer of reporting and coordination.
Most firms don’t have a specific integrated reporting system on the recording and reporting of your donations.
An attorney can coordinate with you on that reporting, but it's clunky and prone to error.
Change, however, provides a comprehensive CCV compliance system which includes:
If you are going to do compliance – or if you are an attorney reading this blog to learn how – here are the necessary steps:
1. Registration: You need to register your CCV – detailing each charity for which you solicit donations – with the Secretary of State before the start of any charitable sales promotion. This registration may involve filing certain forms and paying a fee.
2. Contract: You’ll need a written contract with the charity that includes specific elements, such as a statement of the charitable purpose for the campaign, the goods, or services to be offered, the geographic area in which the campaign will run, the basis upon which the charity's share will be paid, and more.
3. Disclosure: You’ll need to make sure that the advertising for your campaign clearly discloses the per-unit or percentage amount that will go to the charity.
4. Recordkeeping: You’ll need to maintain specific, detailed financial records of the campaign, and these records must be made available to the Secretary of State or Attorney General upon request.
5. Reporting: You’ll need to submit a final accounting report to the Secretary of State or Attorney General and to the charity within a certain number of days (often 90 days, but it depends on the state) when the campaign is done.
Remember: If you are a commercial co-venturer, Change offers a comprehensive regulatory compliance service so you can rest assured that you won’t run afoul of state regulations and avoid fines and regulatory actions.
We strongly recommend that you use a qualified outside resource to set up your CCV correctly and maintain proper regulatory compliance.
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