Partnering with a for-profit business can be a way for a nonprofit to greatly enhance its fundraising efforts. In a so-called commercial coventure, the for-profit business shares a portion of its sales receipts with the nonprofit. Nonprofits who wish to work with commercial coventurers need to take special care to ensure that the arrangement complies with state and federal law.
The definition of commercial coventurer
California law defines a commercial coventurer in this way:[A]ny person who, for profit, is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds, assets, or property for charitable organizations or charitable purposes, and who represents to the public that the purchase or use of any goods, services, entertainment, or any other thing of value will benefit a charitable organization or will be used for a charitable purpose. Cal. Gov. Code §12599.2(a).
There are two important things to note about this definition. First, the coventurer has built a charitable gift into the price of its goods or services. The coventurer is not asking its customers to add an additional donation on top of their purchase. Such an arrangement might instead be categorized as a commercial fundraiser for charitable purposes, which is subject to a different set of rules.
Second, the coventurer is telling customers about the arrangement. Quite often a coventurer enters into these arrangements to enhance its image and will invest in efforts to promote its fundraising effort. If advertising the campaign motivates customers buy, both the nonprofit and the coventurer benefit.
Technical requirements for commercial coventures
A commercial coventure comes with governance and compliance considerations. On the governance side, the nonprofit needs to protect itself by ensuring that the arrangement is set out in a well-drafted contract. In addition to spelling out details of how the financial side of the promotion will work, a contract also needs to provide clear guidelines for how the coventurer can use the nonprofit’s name, logo, and other trademarks. The nonprofit should assert tight control over how the coventurer’s employees describe its work.
On the compliance side, California law imposes specific requirements upon the commercial coventurer, which is treated for legal purposes as a trustee of the funds it raises on behalf of the charity. The coventurer must either register with the state or comply with the requirements of Cal. Gov. Code Section 12599.2, which requires (a) a written contract, (b) transfers of raised funds within 90 days, and (3) a regular accounting to the nonprofit.
Perhaps the most important consideration for a nonprofit thinking about entering into a commercial coventure is that, for good or ill, the nonprofit’s reputation will be tied to that of the for-profit partner. In addition to negotiating a good contract, the nonprofit’s board needs to scrutinize the practices of the proposed partner to verify that it doesn’t do things that might contradict the nonprofit’s mission or undermine its other fundraising efforts.
The Church Law Center focuses its practice on nonprofits
The Church Law Center of California works with clients in the religious and secular nonprofit communities. We are happy to help your organization negotiate terms for a commercial coventuring arrangement. Call us today at (949) 689-0437 or reach out to us through our contact page.