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Dangerous Liaisons

Planning to use the resources of your business to support your favorite candidate? Be careful not to cross the line.
October 1, 1998
URL: http://www.entrepreneur.com/article/16588

The New York car dealer knew corporations were prohibited from contributing to federal election campaigns, but he wanted to do all he could to see his congressman reelected. Knowing individuals may contribute up to $1,000 per candidate, he and the congressman hatched a plan. The car dealer gave $2,000 "bonuses" to 29 current and former employees, telling them to deposit the money in their personal bank accounts. Then each employee and his or her spouse each wrote a check for $1,000 to the congressman's campaign. Suddenly, the campaign was flooded with $1,000 checks from secretaries and mechanics who'd never before donated a dime. The opposition got wind of it, uncovered the scheme, and started running ads charging the congressman with illegal campaign practices. In the end, the scheme cost the congressman the election, and the car dealer had to answer for it in court.

When you care strongly about a candidate or a ballot issue, you may want to invest your own resources and those of your business in hopes of influencing the election. Isn't that what democracy is all about? Well, yes, but federal and state election laws designed to prevent influence-peddling place strict limits on what any given individual or business can do. Make sure you understand both the federal and state laws that apply to elections so you don't inadvertently cross the line.


Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.

A Look At The Law

The Federal Election Commission (FEC) has established clear rules for candidates seeking federal office. No business may donate money or services to a federal election campaign except in a few narrowly defined circumstances. The corporation may establish a separate federal political action committee (PAC) to solicit contributions from managers of the corporation, but it may not coerce those employees to contribute or reimburse anyone for doing so.

A multicandidate PAC (a special designation with additional requirements) can give up to $5,000 per election to a federal candidate. Otherwise, even after establishing a PAC, the limit is $1,000 per candidate per election. The value of services such as employee time spent preparing political mailings are considered contributions to the candidate. A corporate PAC may provide such services to a federal candidate, but the value of such services counts toward the total contribution limit.

"It's fairly simple to set up a PAC," says Frederick G. Slabach, associate dean of Whittier Law School in Costa Mesa, California, who has extensive experience in political action and campaign practices. It involves filing papers with the FEC, selecting a business owner or manager to serve as fund treasurer, designating a bank account and signatories, and filing forms on contributions from individuals to the PAC and expenditures from the PAC to federal candidates or for other political advocacy. "You might run it by your lawyer, but the process is designed [so you don't] need one," Slabach says. "Just be sure to follow the guidelines on whom you may solicit."

As the owner of the business that set up the PAC, you're bound by the same limits as any other individual: $1,000 from personal funds to a federal candidate per election. (A single candidate's primary, primary runoff and general election are considered separate campaigns.)

Laws concerning state and local campaigns vary dramatically from state to state. Check with your secretary of state or your state's fair political practices commission for the laws in your area.

Make No Mistake

To keep your enthusiasm in check, caution is the key. Here are some things to consider:

Your company can legally urge stockholders and management-level employees to support a given candidate or ballot issue if you think a particular election result is in the interest of the business. "The federal government doesn't want to restrict companies from advising stockholders on matters in the interest of the company," says Steven Baron, a litigation attorney with D'Ancona & Pflaum in Chicago. "It's the nonstockholder employees you have to worry about."

If you want to give your rank-and-file employees a chance to sign a petition, follow the example of an Omaha, Nebraska, company that set up a table in the company cafeteria to allow employees to sign a petition on a tax issue that would benefit the company. The company circulated a memo stating the company's strong support for the amendment and describing the opportunity to sign the petition. The people collecting signatures weren't company employees, so everyone could feel comfortable supporting or not supporting the initiative. It's also important not to give anything of value in exchange for a signature, including perceived rewards.

Next Step

The Federal Election Commission (FEC) offers a brochure, "Campaign Guide for Corporations and Labor Organizations," that explains how to establish a PAC for a federal candidate. Call (800) 424-9530 for more information. Also check out the FEC's Web site at http://www.fec.gov

Contact Source

D'Ancona & Pflaum, (312) 580-2108, http://www.dancona.com