Commercial Co-Ventures: How-To
Many nonprofits choose to team up with a for-profit business to benefit the charity while simultaneously promoting a product, service, or good that the business is selling. What is described here is known as a commercial co-venture. While this activity may be advantageous to both the nonprofit and the for-profit business, it is regulated activity in the state of New York.
Commercial Co-Venturer Defined:
Pursuant to McKinney’s Executive Law §171-a, a commercial co-venturer is any person who for profit is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds or any other thing of value for a charitable organization and who advertises that the purchase or use of goods, services, entertainment, or any other thing of value will benefit a charitable organization.
What is Required:
Prior to the Commercial Co-Venture:
There is no registration required by the Attorney General to pursue a commercial co-venture.
A commercial co-venturer must have a written contract with the charitable organization or other person benefitting from the services which includes the following information:
- Names and addresses of the parties
- A beginning date and expiration date of the contract
- Terms of the contract
- A clear description on the services to be performed by the professional fund raiser or fund raising counsel
- A financial agreement
- The percentage or dollar amount of the total funds collected on behalf of the charitable organization which shall be retained by or paid to the professional fund raiser for purposes other than the exclusive benefit of the charitable organization’s charitable purposes
- The fixed fee (if any) to be received by the professional fund raiser or fund raising counsel
- All contractual expenses to be incurred by the professional fund raiser or fund raising counsel but charged to the charitable organization or subsequently deducted from the gross receipts
During the Commercial Co-Venture:
When conducting the commercial co-venture, there are a few practices to keep in mind for transparency between the business and the consumer.
- Clearly describe the promotion. Let the consumer know how their purchase of the product or service with benefit the charity.
- Allow consumers to easily determine their donation amount. When the consumer makes their purchase, it is best to state, “50 cents will go towards charity” or “5% of your purchase will be donated”.
- Be transparent. If a ribbon is commonly used in a cause marketing campaign, disclose to the consumer whether the purchase of the product associated with the ribbon will trigger a charitable donation. One of the most common ribbons we see daily is the pink, breast cancer awareness ribbon. Although many people are aware that this ribbon is associated with supporting breast cancer patients and survivors, it is best to not assume.
- Ensure transparency in social media. It is easy for information to get lost amongst the graphics of a webpage or social media account. If a campaign is promoted on social media, clearly disclose the terms of the campaign.
- Disclose how much was raised. If your nonprofit has a website, clearly display how much profit was accrued through a commercial co-venture.
Pursuant to McKinney’s Executive Law §173, a commercial co-venturer must maintain accurate and current books and records of all activities conducted under any contract with a charitable organization or other person benefitting from the services for a minimum of three years from the expiration date of such contract.
Books and records must be available for inspection, examination, and/or audit by the charitable organization and/or the Attorney General or any authorized representative at the address of the commercial co-venturer.
Upon Completion of the Commercial Co-Venture:
Pursuant to NY Executive Law §173-a(3), within 90 days after termination of a sales promotion advertised to benefit a charitable organization, a commercial co-venturer shall provide such organization with an accounting stating the number of items sold, the amount of money accrued from each sale, and the amount paid or to be paid to the charitable organization.
If any such sales promotion is longer than a one year period, the commercial co-venturer shall provide the charitable organization with an interim report at least annually.
A charitable organization that enters a contract with a commercial co-venturer must file a statement with the organization’s next annual financial report, on forms prescribed by the attorney general, signed by an officer of the organization under penalties for perjury that includes:
- A list of names and addresses of all commercial co-venturers authorized to use its name during the year covered by the financial report
- A statement of the financial terms and conditions of each contract
- Whether the commercial co-venturer has provided an accounting as prescribed
Contact Hedgeman Law with any questions.