Commercial co-ventures are gaining popularity within the last 20 years and the regulations for them are changing. You’ve likely heard plenty of examples of this, from the companies that do a “buy one, give one” model to the companies that donate a portion of their sales to a good cause. But there is some confusion around the different terms that describe these relationships. So what is a commercial co-venture and is it different from cause-based marketing? Let’s dive into the details.

What is a commercial co-venture?

At the most basic level, a commercial co-venture (CCV) is a formal arrangement between a company (or individual) and a nonprofit organization that includes the for-profit (or individual) selling their goods or services while advertising some sort of benefit for the nonprofit. For example, a sock company advertising they will donate one pair of socks to charity if you purchase a pair of socks for yourself is a commercial co-venture arrangement. Another example? If you’ve been to a sporting event on a day dedicated to a specific charity or good cause, you might have seen a CCV in action. If the team donated a portion of ticket or concession sales to a nonprofit, it was likely a commercial co-venture. These arrangements can come in different shapes and sizes, but it is important to note that with their rising popularity, many states now regulate these relationships. Each state handles it differently, with some requiring an official registration or disclosure of the legal relationship between the nonprofit and the for-profit (or individual). 

Why Would a Company Enter into a Commercial Co-venture?

It’s obvious why a charitable cause would want to enter into a CCV– most nonprofits welcome the donations. So why is this arrangement also beneficial and appealing to companies or individuals like celebrities? In addition to supporting a great cause, there are a few key reasons:

• Stable funding in order to start their own nonprofit
• Tax benefits
• Appealing to younger demographics
• More sales

We’ll cover each one in more depth below.

Stable Funding to Start a New Nonprofit 

If you already run a business but you’d also like to start a nonprofit, a commercial co-venture arrangement can kill two birds with one stone. Your company could benefit from the great PR a CCV brings, while also providing a stable source of initial funding to get the nonprofit off the ground. Keep in mind, the new nonprofit will eventually need to be able to pass the public support test, but they are exempt from this requirement in the first three years of existence. 

Or if you’d like to start a nonprofit and help fund it through CCV but don’t want to keep up with all the filing requirements or support test requirements of a nonprofit, you could organize a CCV through a fiscal sponsor. If you’re curious about this arrangement, contact us and we’re happy to speak with you about it.

Tax Benefits for the Company

In a commercial co-venture, the “donor” is the company who has the agreement with the nonprofit, NOT the actual purchaser of the goods or services. So your company can get a tax write off for the amount you donate to the charitable cause, provided the cause is either a 501(c)(3) organization in good standing with the IRS or is under a fiscal sponsor.

Appealing to Millennials and Gen Z 

Within the last decade, consumers have become more attentive to the values of the companies they purchase from. Gen Z and Millennials especially are reporting higher rates of wanting to purchase from companies who share their values. Almost half of Gen Z reported buying from brands who supported a social justice cause in 2022. However, companies should be careful to select causes and word their promotions carefully. The youngest generations are also increasingly skeptical of disingenuous efforts, so be mindful to select a cause that is in line with your business practices. A restaurant that primarily sells steak, for example, would probably be wiser to collaborate with an organization that helps feed families in need rather than an animal rights organization.

Cause-Related Marketing = More Sales for the Company

At the end of the day, a commercial co-venture is cause based marketing. Value-based companies can often sell more products, sometimes even at higher price points, because of the desire of consumers to choose brands that align with their values. If there are two options for a product that are comparable in many ways, adding that extra dose of goodwill can make your brand stand out from the crowd. 

Conclusion

Commercial co-ventures can provide great benefit to both a charitable cause and a business, but they should be handled with care. Research the regulations in your state before entering into a CCV. If your CCV will span multiple states, you’ll likely need to put more time and effort on the front end to ensure you can comply with the regulations of each state. If you’d like to organize a commercial co-venture but your charitable cause doesn’t have 501c3 status yet, reach out to us! We’re happy to discuss how we can help facilitate a CCV for new charitable organizations.