Designing to Do Good: Structuring a Compliant Charitable Promotion
by: Heather Nolan
In the midst of International Charity Fraud Awareness Week, it’s a good time to remember that avoiding fraud in your dealings with charities is just the tip of the regulatory iceberg. As discussed in our prior post, charitable programs may trigger legal compliance. But what does compliance mean to the business team? What are the practical steps for structuring a compliant program? Conducting certain due diligence and setting key expectations in the contract with the charity are good places to start.
Doing due diligence about the charity at the outset is important. The Federal Trade Commission ("FTC") suggests some helpful preliminary steps such as some general internet searching and checking with certain watchdog groups. The FTC's Charity Request Form can be helpful as you begin asking questions of your potential charitable partner. As we previously discussed, remember to think carefully through issues related to online giving portals. Working with charity auction sites also poses some unique issues to discuss with your lawyer at the outset. But, your inquiry should not stop there.
Your for-profit entity or charitable promotion may eventually need to be registered at the state level, for example, in Alabama, California, Hawaii, Illinois, Massachusetts, Mississippi, and South Carolina (see more info here). Some of these registration forms ask detailed questions about the partnering charity, including the charity’s business registration number, so make sure that the charity you are considering maintains proper and up-to-date registrations in the states at issue. It’s best to do this early, because if the charity is not properly registered on its own, it could hold up your own filing. You may also have to disclose connections between the charity and people holding certain positions at the for-profit entity, so make sure to understand any overlap and existing relationships between officers, directors, trustees, or board members.
When drafting the charity contract, carefully consider the impact of compliance requirements. For example, any minimum and maximum donation amounts should reflect what you know from prior similar promotions, if any. Minimums should not be set too high and maximums should not be too low. And if the ads will state or imply that a consumer purchase or other action impacts the donation, then there should be a range of donation amounts possible under the contract. In other words, there should not just be one single committed donation amount. Also, if the maximum is hit, consider who is responsible for adjusting the promotional messaging and what are those potential costs. The length of time that the program will run should also be set based on historical data. Finally, the volume of any merchandise ordered or created for the program should reflect the anticipated sales based on the length of the program and previous campaigns.
These are just some of the practical tips for designing a compliant charitable promotion. Be sure to get a knowledgeable lawyer involved to help identify others – and do so early in the planning phase to help avoid potential delays for your program launch.
If you would like any assistance with this issue, please contact Heather Nolan.
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1 “Your” assumes the reader is a for-profit business whose main business is not soliciting charitable contributions or donations.
2 For example, registering as a commercial co-venturer or trustee, having a written contract with the charity, making certain disclosures in ads, filing and maintaining an accounting and other records, and making timely donations.