An attractive marketing technique is to advertise that part of the price of items (or services) will be donated to charity. Often, sales increase as a result, and the charity usually benefits by receiving funds. You have seen this many times. Under the law, these programs are known as "charitable sales promotions." What you may not realize, however, is that there is a complex legal/regulatory framework, which many states apply to both the for-profit and charitable organizations involved.

Almost all states and the District of Columbia adopted laws long ago to regulate the way charities ask for donations. These are called "charitable solicitation laws," and often regulate not only the charity, but also their for-profit partners in "charitable sales promotions." Violating these laws can lead to civil penalties, such as fines, or even criminal prosecution. So, if your company is planning to advertise that a portion of your sales proceeds will be donated to charity, please read on, as the old saw "ignorance of the law is no excuse" certainly applies here.

Generally, a "charitable sales promotion" is a sales campaign, which touts that the purchase of articles or services will benefit a charitable organization or a charitable cause. Charitable sales promotions can be structured in a myriad of ways and can take the form of an in-store promotion, a direct mail campaign or a solicitation made on packaging or a website. For example, a sponsoring company might advertise that it will donate a certain portion of the proceeds of a sale to a charity, or that it will donate, for example, one dollar to a charitable organization for every ten items purchased, or that for every item purchased, plus a minimum amount donated by the buyer, the sponsor will make a donation to charity.

Charitable solicitation laws impose registration obligations on charitable organizations and on their "fundraising counsel" and "professional fundraisers/solicitors." The term fundraising counsel often covers those who for payment, manage or advise a charitable solicitation. Professional fundraisers/solicitors often are persons or companies who "for financial consideration" solicit, or employ someone else to solicit, contributions for a charity. Fundraising counsel and fundraisers/solicitors usually are required to register each year and sometimes post a bond in the state where the solicitations will be made. Registration also involves making disclosures with solicitors, having a written contract with the charity, and filing the contract with a state. The professional fundraisers/solicitors and fundraising counsel (together with the charity) must maintain financial records and provide a report of the fundraising efforts to the state. So, for regulatory purposes, it is important to determine if the person or company is paid or "compensated" in exchange for their work.

Many charitable solicitation laws regulate solicitations made by "commercial co-venturers." Generally, a commercial co-venturer is a person, or company, who for profit is regularly and primarily engaged in a commercial activity, not a charitable activity, and who also conducts a charitable sales promotion. In many states, commercial co-venturers are not required to register or post a bond.

It is important for sponsoring companies to realize that some states have no legal definition of "commercial co-venturer," but have tried to regulate charitable sales promotions anyway. For example, a professional fundraiser is defined in some states as a person or company who asks for donations, and is paid to do so in cash or other types of "consideration." Some of these regulators have informally advised that sales promotions necessarily result in a certain amount of good will for the sponsoring company. The regulators said that purchasers often buy something because it will benefit a charity. The resulting increased sales for the sponsoring company is termed "good will." These benefits, the regulators sometimes say, are "other consideration" and make the sponsoring company into a "professional fundraiser/solicitor" subject to registration, bonding and other state requirements. Other states that use the words other "consideration" as part of the determination of whether a person or organization is a professional fundraiser/solicitor, have exceptions when the sponsoring company benefits only in having its name publicized, and does not receive any financial benefit. The latter is where the charity, not the for-profit company, supervises and controls the collection and distribution of solicited funds.

Usually, sponsoring commercial companies face these types of state obligations: (1) retaining complete financial and other records of the solicitation; (2) each year registering and sometimes posting a bond; (3) filing solicitation materials; (4) a written contract; (5) filing the contract with the state before the solicitation and (6) making written disclosures in the advertising materials.

So, it is important that the charity and the for-profit company have a written contract. What does that written contract usually entail? Negotiations with the charity should start well before the actual charitable solicitation, so that state laws are completely followed. Invariably, the contract has to be in writing, and signed by the charity and the for-profit company before the solicitation starts. In some states, the contract must be signed a certain number of days before the solicitation is made. Not only should the contract very clearly define the respective obligations of the charity and the company regarding the sales promotion, but many states require the contract to have mandatory terms such as:

• If applicable, the guaranteed minimum percentage of the gross receipts from the fundraising to be utilized exclusively for the charitable purpose of the solicitation;

• Geographic area and starting and final date for solicitations;

• Permission to use the charitable organization's name and manner in which it will be used;

• Representation to the public of the estimated dollar amount, or percent per unit of goods/services sold, that will go to the charitable organization;

• Estimated number of units of goods or services to be sold or used; Identification of charitable purpose and goods/services;

• Date by which, and the manner in which, payment will be made to the charity;

• If applicable, a provision for a final accounting by the commercial co-venturer to the charity; and

• If applicable, maximum dollar amount that will be paid to the charitable organization.

There also are laws in many states that require certain phrases to be in any advertising material. Usually this is "the fine print."

Companies and charities would do well to review the laws in the states where the charitable solicitation or charitable sales promotion will take place, so that they inadvertently do not violate the laws, thus subjecting themselves to not only bad publicity, but to adverse actions by state regulators.

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The Law Office of Jay Fleisher offers charitable solicitation registration services in all states. Out of his Palm Beach County, Florida, office clients may confer with him in person, or make an initial no-cost telephone consultation appointment from anywhere in the country.