Onus on nonprofits in commercial co-ventures

As nonprofits and for-profit businesses embark on an increasing number of cause marketing campaigns, regulators are taking a closer look at these arrangements.

During the 2015 Cause Marketing Forum, Terri Seligman of Frankfurt Kurnit Klein & Selz and Ed Chansky of Greenburg Taurig said that governmental scrutiny stems from a desire to prevent businesses from trading on the name of a charity without any real benefit to the charity. For that reason, a majority of states established a term, commercial co-venturer, and defined it as a for-profit entity that advertises to the public that the purchase of its product will benefit a charity.

Nonprofit managers considering a cause-marketing venture should remember the following:

  • Some states include for-profit companies that benefit in “good will” in their definition of co-venturer. Massachusetts, Alabama, Mississippi and South Carolina are good will states.
  • Several states require specific provisions in the contract between the nonprofit and the business, such as the right of the charity to cancel, auditing and record keeping.
  • Six states require registration: Alabama, Illinois, Massachusetts, Hawaii, Mississippi and South Carolina, and the first three also require bonding. This means the nonprofit must be registered in the states in which the campaign will be conducted.
  • Most states require disclosure in advertising.
  • The nonprofit is responsible for filing the contract in Arkansas, Connecticut, New Jersey, New Hampshire and Utah, the last two of which also require a notice of promotion.