Consider Non-Profit Licensing Agreements for Additional Revenue

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07 Oct Consider Non-Profit Licensing Agreements for Additional Revenue

In this pandemic year, many non-profits are scrambling to find new sources of revenue to replace donor contributions and other lost income. If this sounds like your charity, you might want to consider licensing your name and brand to a for-profit business.

Ensuring Success

When licensing arrangements work, both charities and companies can experience significant benefits. One example is AARP, which licenses its name to a variety of companies, including UnitedHealthcare, The Hartford, and ExxonMobil. But such arrangements also can cause problems. For example, if a product ‘endorsed’ by a non-profit is found to be ineffective or harmful, the non-profit may suffer by association. In the same regard, a non-profit mired in controversy could harm the public perception of a product or service bearing its name.

To ensure a license arrangement does not become a public relations problem, thoroughly research any potential partner’s business, products, and the backgrounds of its principals. Also confirm that your mission and values align. If you determine that a potential licensee’s products or services have the potential to undermine your brand, take a pass — no matter how high the promised royalties.

Look Before You Leap

Work with your attorney to include certain provisions in any license agreement. Specify how the licensee can use your name and brand, mandate quality control standards, and detail termination rights. In addition, realize that signing the agreement does not end your responsibility — you will need to actively monitor the licensee’s use of your name and intellectual property throughout the agreement period. If it sounds like all this will require additional staff time, you are right.

In fact, the resource-intensive nature of licensing leads some non-profits to outsource the work. Outsourcing allows your organization to focus on its mission, but you will probably pay upfront fees, a monthly retainer, and a percentage of the royalties that your consultant secures. So, it is important to crunch the numbers and make sure your license arrangement is worth this expense and effort.

Do not forget the tax implications of licensing. Non-profits enjoy a royalty exclusion that generally exempts licensing revenues from unrelated business income taxes. However, certain arrangements can jeopardize this. You cannot receive compensation based on your licensee’s net sales — only on gross sales. And you must play a passive role, meaning you do not actively provide services to the licensee.

Make A Positive Impression

Any licensing arrangement your non-profit enters into should generate revenue and, probably even more important, promote a positive impression of your brand. To make sure you meet both goals, consult an attorney about legal details and us for financial advice.