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Co-venturing Can Create Benefits for Business and Charity But May Be Regulated By Disclosure Laws

June 25, 2010


Charities and for-profit businesses can often cooperate on promotional efforts that increase the sales of the business and generate substantial additional contributions for the charity.

If, for example, the local hamburger business advertises that it will pay 50 cents to a charity for children from each hamburger sold during the month of June, the company may increase sales while the charity will receive more money and a lot of good free publicity.  The law has a name for the relationship:  it is called commercial co-venturing.  And it may be subject to disclosure requirements.

Most charities are aware of the charitable solicitation registration laws that exist in 39 states and the District of Columbia.  Unless excluded or exempted, generally any organization asking for charitable contributions in these jurisdictions will have to register and file annual disclosure statements with a state regulator before starting solicitation.  Failure to do so can result in injunctions or fines for the organization involved.

Pennsylvania and New Jersey are among the states that actively enforce their registration laws.  Delaware is one of the states without such regulation.

What is less widely known, however, is that many states regulate the commercial co-venturer relationship.  Four states (Alabama, California, Maine, and Massachusetts) and the District of Columbia require pre-registration by the commercial co-venturer.  Sixteen additional states, including New Jersey, require written contracts between the parties, and some require specific types of provisions.  (The Pennsylvania charitable solicitation registration statute defines a commercial co-venturer but does not impose any requirements of the relationship.)

Some states require that a copy of the contract be filed with the state; others merely require that it be kept on file and made available to the state for a certain period after the end of the promotion.  California requires the business to make payments to the charity at least every 90 days during the promotion.

Why do the states care about these issues? A particularly noteworthy commercial co-venture occurred many years ago when the General Mills Company offered to donate 50 cents to the Breast Cancer Research Foundation for every foil lid from its Yoplait yogurt containers that purchasers sent back to the company.  Consumers sent back lids that would have resulted in the Breast Cancer Research Foundation receiving more than $4.7 million.  Unfortunately, under the terms of the original agreement, General Mills was only obligated to contribute a maximum of $100,000 to the Foundation, no matter how many lids were sent in by consumers.  Because this particular fact was not adequately disclosed to consumers, the Georgia Secretary of State’s Office subsequently required General Mills to make a significant additional payment to the Breast Cancer Research Foundation because of the company’s failure to adequately disclose to consumers that there was a maximum amount that General Mills had agreed to donate. Largely as a result of this case, commercial co-venturers now are typically very careful to clearly disclose to consumers if there is a maximum amount or cap on the amount that they will pay a charity.

As the Yoplait case makes clear, commercial co-venturing can be extremely beneficial financially for the co-venturers, but can also be costly in adverse public relations if significant details are not fully disclosed.  And the effort may be subject to legal sanction if applicable statutory requirements are not followed.

This article is based on materials utilized for a presentation on co-venturing last month at the 8th annual Nonprofit Institute of the Pennsylvania Bar Institute by Karl Emerson, of-counsel in the firm’s Health & Nonprofit Law Section and formerly Director of the Bureau of Charitable Organizations of Pennsylvania, and Virginia Sikes, chair of the firm’s Tax group.  For a copy of the complete materials, send a request to either Karl (kemerson@mmwr.com) or Jennie (vsikes@mmwr.com).