“We’ve found out that we have been the passive beneficiary of some cause marketing campaigns of which we were not informed until after the fact. Basically, a company announces a special 'giving back', limited promotion where they will donate a portion or all sales to our nonprofit organization. Is this a commercial co-venture? And, if so, are we now required to complete legal registration paperwork?” [/box]
A charity sometimes finds itself the unexpected beneficiary of a charitable sales promotion it knew nothing about — that is, a commercial party independently offers goods or services based on a representation that a purchase will benefit the charity without ever telling the charity in advance about the promotion, or seeking permission to use the charity's name, or entering into a contract with the charity.
The Good News
The good news is that an unexpected donor is at the doorstep with a windfall check.
The Bad News
The bad news is that the promotion was conducted without the written contract required in many states, and without registration by the sponsor in the smaller group of states with such requirements.
To Accept or Not to Accept
What is the charity to do? Accept the money? Send the sponsor/donor away? Something else? The answer will depend on the facts. For example, if the sponsor is a party the charity would not normally accept funding from (perhaps a tobacco, liquor or other company that does not fit the charity's mission), the charity should not accept the money. Similarly, if the advertising for the promotion was somehow fraudulent or misleading, the charity might not be comfortable accepting the money.
But let's assume a tougher case where the sponsor acted with good and honest (though uninformed) intentions, the advertising was truthful and non-misleading, and the sponsor is a company the charity is willing to accept funding from. On those facts, what should the charity do?
Choosing the Lesser Evil
The answer requires balancing risks and choosing the lesser of evils. Refusing the donation makes the sponsor's advertising false and risks generating consumer ill will against both the sponsor and the charity. Accepting the money can give the appearance of ratifying a promotion that didn't comply with technical statutory requirements but was otherwise truthful and non-misleading and conducted in good faith.
Faced with these choices, the charity can consider accepting the donation but also issuing a strong letter notifying the sponsor (a) what it did wrong, (b) how to seek permission in the future, and (c) that the charity will not accept future donations without proper documentation and procedures. Of course, the charity should then adhere to that position and not turn a blind eye to future similar conduct by the same sponsor. The first time might have been a good faith mistake. Repeat offenses can't be forgiven as easily — by the charity or by state regulators.