5 Laws That Every Nonprofit Marketing Team Should Know
Nonprofit organizations depend on donors and volunteers to raise awareness and source the funds necessary to run their operations. To achieve this, they deploy marketing strategies similar to what every other business would use. However, nonprofit marketing follows the rules and regulations that dictate how advertising and fund-raising should be conducted.
Nowadays, nonprofit organizations are working with for-profit businesses to spread awareness, run sales and raise funds for charitable causes. This type of marketing is popularly known as cause marketing, and several regulations exist to govern these campaigns. We’ve rounded up five legal considerations to keep in mind the next time you are running a cause marketing campaign.
Understanding the Legal Landscape
Often, marketers would run online cause marketing campaigns without considering whether there are laws governing how they should advertise or raise money from the customers or audience.
That said, there are a couple of legal provisions, which oversee advertising and marketing disclosures, contract requirements, federal taxes, etc. At the state level, some laws govern fundraiser events, and some oversee Data privacy and security. With the latter, nonprofits need to follow email and anti-spam laws when communicating with donors and volunteers.
Understanding the legal landscape and complying with all the laws requires expert advice. It’s always advisable to work with competent employment lawyers to help you and your marketing partner(s) stay compliant and avoid federal and state enforcement actions.
Avoid Misleading the Audience
When running a nonprofit marketing campaign, it’s required that some pieces of information are transparent and readily available to the audience. For instance, the adverts should be clear on how the raised amount will be used and how much or what percentage of sales proceeds will go to charity.
At the point of sale, it’s recommended to disclose the following information:
- The amount to donate/donated per purchase
- The length or period of the campaign
- The minimum or maximum guaranteed contribution to the charity, if any
- Donation capitalization, if any
- Additional requirements or restrictions, if any
Similarly, you want to avoid unintended endorsements for any reason, as this can violate specific state laws governing charitable activities. Using a charity’s logo, name, or slogan while selling a commercial product online may mislead customers that the charity has endorsed that particular product when in reality, it has not. A rule of thumb is to avoid any tricks intended to boost the sales of products that a charity does not endorse.
Understand the BBB Standards for Charity Accountability
The Better Business Bureau (BBB) Standards are rules designed to help donors make sound decisions when contributing to a charitable cause. These voluntary standards also seek to encourage public confidence and foster honest and fair solicitation practices to ensure ethical conduct.
One of the rules specific to nonprofit marketing is standard #19, which requires marketers to disclose how the charity benefits from a product or service sales. The rule requires a particular mention of the percentage or flat amount that will go directly to the charity and whether or not the customer’s actions will influence the amount directed to charity.
Registrations and Agreements
Any business that’s partnering with a charitable organization to drive sales of products or services (which will benefit a charitable cause) must register and file campaigns and contract reports, as dictated by the host state.
Businesses engaging in charitable sales promotions must comply with reporting and registration provisions in up to 7 states. When conducting cause marketing campaigns online, the regulatory framework changes. You’ll need to talk with your lawyer to ascertain which states have jurisdiction over your online cause marketing campaigns.
Another thing to keep in mind is the need for a written contract that will entail all your marketing partnerships and a share of proceeds from the sales efforts. The agreement should define:
- The products or services offered
- The territory or geographic location of the campaign
- How the donation is triggered and the amount that goes to charity — either a flat fee or a percentage of the total amount
- The campaign period
Beware of Taxes
When a charity organization endorses products or services from a particular company, the sales or payments made may be subject to a special tax called the unrelated business income tax (UBIT). Often, tax-exempt organizations are allowed to conduct specific amounts of unrelated business activities, and a decision to incur UBIT should be informed. For an action to attract this tax, it must meet the following requirements:
- It’s a trade or business.
- It's carried on regularly.
- It's not substantially related to furthering the exempt purpose of the organization.
A charitable organization, which has earned 501(c)(3) determination and is actively engaged in unrelated business activity, attracts up to a 37% (UBIT) tax rate.
Every nonprofit organization, at some point, will run a fundraiser, and sometimes this means partnering with a business to endorse their line of products or services. Signing contracts and reaching an agreement on how the proceeds will be shared isn’t a big challenge. However, understanding the various federal and state laws and how they may affect the entire marketing and fundraiser campaigns is crucial.
Author: Ben Gonzalez graduated from the UC Berkeley School of Law in 2013. Shortly after graduation, he worked as a paralegal until 2017, where he gained insightful knowledge used in his legal writing process. Ben is currently a freelance lawyer and enjoys writing in his free time. He is a proud California resident located in San Francisco.