Cause Marketing, Special Rules and Regulations For Corporations and For Charities Presented by: Kent E. Seton, Esq. 1

What is Fueling This Phenomenon Recent Corporate Guilt 2008 Exxon Mistakes of another generation Goodwill vs. Economic Advantage; is there greed left? 2 new California corporations – Flexible – Benefit 2

Introduction and Definitions Corporate Philanthropy; a sustainable and legal method to generate funds for charitable purposes or is this really more corporate greed? – Corporate Goodwill – Good Marketing – Generates employee satisfaction – Volunteer opportunities for employees – Team building – Matching Programs – Scholarships programs for employees kids Cause Marketing; a commercial enterprise markets and promotes to the public that if you purchase its product or services, we will donate a certain percentage of proceeds to XYZ charity. – Ex. Coffee Bean & Tea Leaf states that if you buy a cup of coffee on the third Thursday of every month, we will donate 3% to Make A Wish Foundation. – Ex. Tom’s Shoes, for every pair of shoes you purchase, we will donate one. 3

The Fundamentals What is Corporate Philanthropy? UBIT – Trade Or Business Commercial In Nature? Unfair advantage? – Regularly Carried On One Time is Enough – Unrelated Homeboy Industries Corporate Sponsorships/ UBIT – Acknowledgments vs. Advertising Examples: “Thank you for generous support to XYZ Corporation” vs. “Please buy XYZ Corporation’s new Widget” What is Cause Marketing? – Commercial Co Venture Defined Passive Recipient vs. More involved ( ie. Selling the products on the website) 4

More Fundamentals Other Corporate Arrangements – Joint Venture – Partnership – Affiliated Entities Treatment of Revenue Received by Charity – Proceeds from a commercial co venture campaign – Proceeds from an unrelated business partnership – Corporate Sponsorship Revenue More than an acknowledgement – Ex. The best coffee in the world – We are doing a campaign that makes us the recipient of charitable funds. – Please go to the website of XYZ Corporation and buy their product as it will benefit us. Corporate Gifts in Kind Versus Cash, Does it change anything if part of a “cause marketing” campaign? – Employer matching programs – Employee volunteer programs Corporate Sponsorship of Fundraising Events – Held by Charity – Held by Corporation, is it a cause marketing campaign? 5

Cause Marketing Rules Approximately 40 states have rules regulating soliciting and receiving charitable funds. Each state has its own set of rules. If you are engaged in national cause marketing campaign, you must comply with these rules. – The charity must comply, comply with all states in which the offer is made AVOID UBIT AVOID SELF DEALING, CORPORATE FOUNDATIONS AND CORPORATE CHARITABLE ARMS – The Commercial Co Venture must comply, 20 states have some sort of regulations for the Corporation engaged in the cause marketing campaigns. – The Charleston Principle Basically, each state has some set of rules dealing with fundraising, dealing with each of the following four categories: – Registration in State, initial and renewals – Bonding – Written Agreements concerning fundraising activities – Accounting and Record Keeping 6

Commercial Co Venture Agreements Most states have rules concerning these arrangements including having a written agreement between the commercial co venturer and the charity. Agreements should deal with the following matters: 1. Respective Rights and Obligations 2. Use of trademarks 3. Disclosures to public – Common Mistake #1, most important part of campaign – Per unit basis, Example, “portion of gross proceeds”, 50% of net profits, be clear and where you place the disclosure is VERY IMPORTANT. 4. Methodology for Accounting for Fundraising 5. Easy to understand formulas for calculating amounts due charity 6. Indemnification 7. Timing of distributions to charity 7

Most Common Mistakes 1. Disclosures are fuzzy or vague False or deceptive advertising rules apply How long does program apply for 2. The Agreement with Charity is not clear therefore, disputes arise. 3. Either the commercial co venturer or the charity fails to register, both must 8

Questions and Answers Kent E. Seton, Esq. (310)

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