The question we most often get from companies that are engaging in marketing with nonprofits is:
“Why do we have to bother with compliance? Clearly what we're doing is a benefit to the nonprofit.”
Agreed!
So what are the regulators looking for?
Sunlight.
There is no better purifier in our environment than sunlight.
In compliance, that same visibility (sunlight) ensures that business partnerships, especially those involving charitable promotions, maintain integrity and compliance with legal standards.
States believe sunlight protects consumers and supports genuine philanthropic efforts.
For-profit businesses benefit from engaging in nonprofit relationships.
Consumers notice the efforts.
Sales increase.
And there’s often a PR benefit, too.
Nonprofits are supposed to benefit from these relationships with for-profit businesses in increased donations and by calling attention to their cause.
It's supposed to be a win-win – and it almost always is.
Almost.
There are actually very few limitations on what you can do in partnership with a nonprofit to promote your business and help them raise visibility and donations.
But keep one key disclosure truism in mind: sunlight.
Disclose, disclose, disclose in all of your regulatory filings.
Be crystal clear about who you are, what you are doing, and give consumers all the information they need to make an informed decision.
As long as you clearly set forth what you are doing with a nonprofit, meet the disclosure minimums, and file the correct reports, you are compliant.
But if you hide in the shadows or underreport what you are doing, the states will come knocking and, perhaps more damaging, the class action lawyers or state AGs.
When a for-profit business collaborates with a nonprofit in a manner which will show an association, raise money for the nonprofit, and increase awareness and, potentially, sales for the for-profit business, it is known as a commercial co-venture.
You, as a for-profit business, are now known as a commercial co-venturer.
A commercial co-venturer (“CCV”) is a regulated entity.
First: State regulatory agencies are trying to inform consumers (remember, sunlight) about the relationship between for-profit businesses and nonprofits when making purchases of products or services.
Second: States are trying to put regulations and guardrails in place to protect nonprofits in their relationships with for-profit businesses.
With minor exceptions, there are five critical components for CCV regulations:
Disclosing information = sunlight.
For instance, failing to disclose the specifics of company names and their public-facing marketing campaigns immediately violates the intent, spirit, and framework of the regulatory structure of all states that regulate CCVs.
Similarly, failing to disclose and accurately report the specific dollar amounts raised and donated to nonprofits, net of expenses, also immediately violates the regulatory framework of all states.
Protect yourself and disclose, disclose, disclose.
In the highly regulated securities industry, attorneys advising on public offerings disclosure compliance have a saying:
“Buyers don’t read, and readers don’t buy.”
This means that the individuals purchasing your stock offering may not read the prospectus, but rest assured, regulators and eager tort lawyers will.
As a CCV, your primary regulatory concern is not whether consumers actually read your promotions and understand your CCV and cause marketing relationships with a nonprofit.
The regulations are designed to ensure full disclosure to consumers, which they will receive if you comply with the regulations.
Although disclosures at the time of purchase are critical (and part of the CCV requirements), it’s not typical for consumers to go online to a state site and read the CCV disclosures during their purchasing journey.
However, two entities, who are not buyers, will be the primary readers of your filings:
The laws are clear about disclosure.
CCV compliance is not complicated, though it requires a programmatic approach.
Follow best practices, and you’ll have nothing to worry about from regulatory agencies or aggressive tort lawyers.
Your honest, forthright disclosures create a legal safe harbor for you.
It will not negatively affect any sales or marketing campaigns and provides solid protection against legal threats.
Embrace the sunshine—it’s for your own benefit.
Every state that regulates CCVs asserts that selling a product or service to a resident in their state creates a nexus.
Nexus is a legal term signifying a connection or link between things, people, or events, particularly one that forms part of a chain of causation.
Therefore, when selling to a resident in another state, you establish a nexus and are required to register and report as a CCV in that state.
For ecommerce companies, this naturally applies to every business.
In reality, who doesn’t sell their products and services across state borders in the U.S.?
Unless you’re vending peaches at a roadside stand in Garden Valley, Georgia, you have out-of-state customers.
And with out-of-state customers comes a nexus.
You’ll need to comply with any of the following states that regulate CCVs:
Get a detailed overview of what each state requires.
Compliance can be outsourced (to Change) and won’t negatively impact your cause marketing results.
Step into the sunshine.
Stay out of the shadows.
So you can confidently enjoy the benefits that cause marketing campaigns have to offer.
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