With the 2012 election in full swing, Americans are closely following the brewing civic debate over corporate political participation. While Citizens United and several lower court decisions have indeed opened the door to new avenues for corporate political activity, the reality is that corporations remain subject to strict regulation in this area. At all levels of government—and increasingly within the boardroom, as well—corporations must contend with a complex array of restrictions on political activities, presenting a significant compliance challenge for corporate counsel. Over the coming weeks, this column will discuss important and timely compliance issues spanning the range of corporate political regulation. This week, we highlight the basic rules governing corporate participation in federal elections, and some of the most common ways corporations can get involved.

The basic rule: Corporations may not give political contributions.

The Federal Election Campaign Act (FECA) broadly prohibits corporations from using general treasury funds to make contributions or expenditures in connection with federal elections. (State law varies; some states permit corporate contributions.) The ban prohibits not just monetary contributions, but also in-kind contributions, such as payment for goods or services, or providing the use of corporate facilities, resources or personnel to benefit a campaign, party or committee. A number of exceptions make corporate political activity possible.

Options for corporate participation in federal elections:

1. Corporate PACs. Corporations are permitted to sponsor political action committees, or PACs. A corporate PAC is a separate, segregated fund held and administered by the sponsoring corporation, through which the corporation may raise contributions from a restricted class of individuals, and then use those funds to support federal candidates and committees. The key elements include:

  • Separation of funds. Money contributed to a PAC must be held in a separate bank account from the general corporate treasury. The corporation may not use treasury funds to make contributions to the PAC, and any commingling of treasury funds with PAC funds is strictly prohibited.
  • Corporate control; payment of administrative costs. The corporate sponsor may use its treasury funds to pay for the PAC’s operating and fundraising costs, and may also exercise control over how PAC funds are distributed.
  • Soliciting and accepting contributions. The PAC may be funded only with voluntary contributions of up to $5,000 per year from eligible contributors. The PAC may solicit only its restricted class for contributions, which includes:

(a) Its salaried, management-level employees

(b) Its shareholders

(c) These groups’ families

All solicitations must include specific legal notices. The PAC may not accept contributions made in the name of another, corporate contributions or contributions from foreign nationals.

  • Making contributions. Established PACs may give up to $5,000 per election to candidates for federal office (primaries and general elections are counted separately). New PACs are subject initially to a lower, $2,500 per candidate per election limit. PACs also may make contributions to political parties and other PACs, subject to specific annual limits.
  • Reporting and compliance. PACs must submit regular reports to the Federal Election Commission (FEC) disclosing all PAC receipts and disbursements. Every PAC must have a treasurer, who is responsible for complying with FECA and is subject to civil penalties for violations.

2. Fundraising activities. In addition to making candidate contributions through PACs, corporations may support candidate fundraising through carefully structured events. A PAC may host a candidate fundraiser and invite the general public. The PAC or the candidate—not the corporation—must pay for event costs (food, room rental, invitations, etc.) and treat amounts spent as in-kind contributions to the candidate, subject to the PAC’s $5,000 per candidate contribution limit. Additionally, unless FEC reimbursement and advance payment rules are met, use of corporate facilities or participation by lower-level corporate personnel may result in illegal corporate facilitation of contributions.

Alternatively, the corporation may itself host a candidate fundraiser, but only if the guest list is limited to the corporation’s restricted class. The corporation may pay for reasonable event costs, and both the corporation and invited candidate may solicit contributions. However, only the candidate or candidate’s staff may collect the contributions. Any use of the corporation’s personnel or other resources to collect or forward the donations to the campaign will be considered illegal facilitation, and violators of this rule have been severely sanctioned.

These are both complex areas, and counsel should be involved in the planning.

3. Communications. After Citizens United, most corporations may now use treasury funds to communicate almost any political message to the public, short of soliciting contributions or coordinating communications with a campaign or political party.

Specifically, corporations may use treasury funds to make independent expenditures, which are expenditures for communications expressly advocating the election or defeat of clearly identified candidates for federal office, made independently of any candidate or party. If coordinated, the expenditure becomes a prohibited in-kind contribution. Corporations should be well-versed in the details of what constitutes prohibited coordination before undertaking independent expenditures. Additionally, prior to making independent expenditures or electioneering communications (messages referring to candidates broadcast close in time to an election) corporations should be familiar with FEC reporting and disclosure requirements (some reports are due within 24 hours or 48 hours of an expenditure). As we will discuss in future columns, there are a number of groups that can accept corporate contributions for independent expenditures.

A corporation may spend treasury funds on communications to its restricted class on any subject, including solicitations for contributions. Unlike communications outside the restricted class, however, such communications may be coordinated with a candidate or party.

4. Trade associations. Trade associations provide an important outlet for collective industry participation in the civic arena. Trade associations may sponsor PACs, which member corporations may support. A member corporation may earmark contributions to fund the association PAC’s administrative expenses, and also may permit the association PAC to solicit the corporation’s restricted class for contributions (approval may be given to only one association per year). Additionally, corporations may contribute unlimited amounts in support of trade association independent expenditures.