Federal Election Commission Main Page
FEDERAL ELECTION COMMISSION
Washington, DC 20463
October 20, 2005
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 2005-14
Andrew C. Selden, Esquire
Neal T. Buethe, Esquire
Briggs and Morgan
2200 IDS Center
80 South Eighth Street
Minneapolis, Minnesota 55402
Dear Messrs. Selden and Buethe:
We are responding to your advisory opinion request on behalf
of the Association of Kentucky Fried Chicken Franchisees, Inc.
("AKFCF") and its separate segregated fund ("AKFCF PAC"),
concerning the application of the Federal Election Campaign Act
of 1971, as amended (the "Act"), and Commission regulations to
AKFCF's status as a federation of trade associations and its
ability to solicit contributions to AKFCF PAC from the
solicitable class of incorporated Kentucky Fried Chicken ("KFC")
franchisees that are members of AKFCF's regional trade
associations, and from unincorporated franchisees, including
individuals, that are members of the regional trade associations.
The Commission concludes that AKFCF is a federation of trade
associations comprised of affiliated regional trade associations
that are, in turn, comprised of KFC franchisees. Hence, AKFCF
and AKFCF PAC may solicit the owners and executive and
administrative personnel of the incorporated franchisee-members
of the regional trade associations, and the families of those
individuals, for contributions to AKFCF PAC. AKFCF and AKFCF PAC
may also solicit contributions from franchisee-members who are
individuals or unincorporated entities.
Background
The facts of this request are presented in your letter and
attachments received on July 20, 2005, and follow-up letters and
e-mail communications received between August 4 and September 15,
2005.
1. AKFCF, the regional associations, and AKFCF PAC
AKFCF is a Georgia corporation that characterizes itself as
a trade association. AKFCF's articles of incorporation provide
that it functions "as a business league as that term is used in
Section 501(c)(6) of the Internal Revenue Code," that it "is not
organized and shall not be operated for pecuniary gain or profit"
and that no income or profit shall "be distributable to or inure
to the benefit of its members, directors, officers, or any other
individual." AKFCF Articles of Incorporation, Articles III and
IV. AKFCF's only members are ten separately incorporated
regional associations, the members of which are franchisees of
KFC Corporation.1
The articles of incorporation and/or by-laws of five of the
seven domestic regional associations contain provisions similar
to those found in AKFCF's articles of incorporation with respect
to functioning as a business league, to their status as non-
profit organizations and operations, and to the non-distribution
of income or profits. Regarding the remaining two domestic
regional associations, the Northwest association is officially
organized as a Washington State for-profit organization and the
Southern California association is organized under the broad
category of California "nonprofit mutual benefit corporation."
However, you represent that these two regional associations also
conduct themselves in a manner consistent with the provisions
described above; they are non-stock membership associations
functioning as non-profits, no dividend or profits are ever paid
to the members, and any annual surplus is used in programming
sponsored by the association for its members.
The regional associations are composed of members who are
KFC franchisees. These franchisee-members are all either closely-
held corporations, limited liability companies ("LLCs"),
partnerships, or individuals.
In 2005, AKFCF established a separate segregated fund
("SSF"), AKFCF PAC, "in order to support conditions that favor
federal legislation favorable to franchisees." AKFCF PAC filed
its Statement of Organization with the Commission on June 2,
2005. None of the regional associations sponsors its own SSF.
2. Purpose of AKFCF and the regional associations
AKFCF was formed in 1975 to coordinate the activities of the
regional associations that either had been formed or were then
being formed. Among AKFCF's stated purposes are fostering and
coordinating the activities of the regional associations,
developing the industry composed of KFC franchised food outlets,
improving the nature of services in the industry, encouraging
inventiveness and communication within the industry, and securing
for the industry fair and equitable treatment in transactions
with manufacturers of, and dealers in, supplies. AKFCF Articles
of Incorporation, Article III. The stated purposes of the
regional associations vary but each is organized to promote the
mutual interests of the KFC franchisees in its own region.
3. Structure of AKFCF and the regional associations
The AKFCF by-laws set forth the role of the leaders of the
regional associations in governing AKFCF, and, in turn, the seven
domestic regional associations' by-laws indicate the role of the
members of each regional association in selecting those leaders
who govern AKFCF. The affairs of AKFCF are "managed by, or under
the direction of," its Board of Directors. AKFCF By-laws,
Section 4.1. The Board is composed of three high-ranking
officers from each of the regional associations. AKFCF By-laws,
Section 4.2. At its annual regular meeting, the AKFCF Board
appoints five "Principal officers" for one-year terms. The
Immediate Past President and the Principal officers sit on the
Board and manage AKFCF's day-to-day affairs. AKFCF By-laws,
Sections 4.2, 4.7, 5.1, and 5.2. Each Principal officer must be
either a director already, or a past or current officer of one of
the regional associations and a member in good standing of that
association.2 AKFCF By-laws, Section 5.1.
The by-laws of the seven domestic regional associations
indicate that their high-ranking officers are elected by their
franchisee-members, and that most or all of their directors are
elected directly by their franchisee-members. Generally, the
directors and high-ranking officers of the regional associations
must be franchisee-members of the association or, in the case of
franchisees that are not individuals, representatives of those
franchisees.
Questions Presented
1. Is AKFCF a federation of trade associations comprised of
regional trade associations that are affiliated with AKFCF?
2. May AKFCF or AKFCF PAC solicit the owners and executive and
administrative personnel of the incorporated franchisee-members
of the domestic regional associations, and the families of those
individuals, for contributions to AKFCF PAC? May AKFCF or AKFCF
PAC solicit contributions from unincorporated franchisee-members,
including individuals, of the domestic regional associations?
Legal Analysis and Conclusions
1. Is AKFCF a federation of trade associations comprised of
regional trade associations that are affiliated with AKFCF?
Yes, AKFCF is a federation of trade associations comprised
of regional trade associations that are affiliated with AKFCF.
Commission regulations define a trade association as:
generally a membership organization of persons engaging
in a similar or related line of commerce, organized to
promote and improve business conditions in that line of
commerce and not to engage in a regular business of a
kind ordinarily carried on for profit, and no part of
the net earnings of which inures to the benefit of any
member.
11 CFR 114.8(a) (emphasis added). Accordingly, in order to
qualify as a trade association, an association must first qualify
as a membership organization under Commission regulations.
AKFCF and each of the domestic regional associations
qualifies as a membership organization under Commission
regulations. Specifically, AKFCF and the domestic regional
associations are composed of persons (i.e., entities and
individuals) that are "members" as defined by the Act and
regulations, in that the persons must satisfy the membership
requirements set out in their respective by-laws, affirmatively
accept an invitation to become a member, and, with the exception
of a few classes in some of the domestic regional associations,
pay annual membership dues of a pre-determined amount specified
by the Boards or by-laws of AKFCF or the domestic regional
associations.3 11 CFR 100.134(f) and 114.1(e)(2). With respect
to the definition of "membership organization," all of the
members of AKFCF and at least some of the members of each
domestic regional association, as Board members or officers, have
the authority to operate their respective association pursuant to
their by-laws. AKFCF and each domestic regional association sets
out the membership requirements in its by-laws and, as evidenced
by their web sites, the domestic regional associations expressly
solicit persons to become members. The Commission assumes that
AKCF and each domestic regional association makes its formal
organizational documents available to its members upon request
and expressly acknowledges the acceptance of membership.
Finally, neither AKFCF nor the regional associations is organized
primarily for the purpose of influencing an election of any
individual to Federal office. 11 CFR 100.134(e) and 114.1(e)(1).
AKFCF and each of the domestic regional associations also
qualifies as a trade association in accordance with 11 CFR
114.8(a). Each is a membership organization of persons engaging
in a similar line of commerce, and each is organized to promote
and improve business conditions in that line of commerce.
Neither AKFCF nor any of the domestic regional associations is
organized to engage in a regular business of a kind ordinarily
carried on for profit.
Moreover, no part of the net earnings of AKFCF or any of the
domestic regional associations inures to the benefit of any
member.4
Commission regulations define a federation of trade
associations as "an organization representing trade associations
involved in the same or allied line of commerce." 11 CFR
114.8(g)(1). In determining whether an entity is a federation of
trade associations, the Commission has examined a variety of
organizational structures, which are typically composed of one
coordinating organization interconnected with regional (e.g.,
State) organizations. Notably, the Commission has concluded that
an entity is a federation of trade associations when a
significant portion of its board of directors consists of
representatives of the State trade associations, and the State
trade associations participate as principal or important units in
the governance of the federation. See, e.g., Advisory Opinions
1998-19, 1995-17, and 1977-44. Under AKFCF's by-laws, the
highest governing body consists mostly of high-ranking officers
of the regional trade associations, and the Principal officers
operating AKFCF on a day-to-day basis must also be past or
current officers of a regional association. Consistent with past
determinations by the Commission, AKFCF thus qualifies as a
federation of the regional trade associations.
Under 11 CFR 114.8(g)(1), a federation of trade associations
may solicit contributions to its SSF from the members of the
federation's regional, state, or local affiliates or members
provided that the federation and the affiliates or members
qualify as "affiliated" under the Act and Commission regulations.
"Affiliation" among the organizations is based on specific
factors set forth at 11 CFR 100.5(g)(4) (and repeated at 11 CFR
110.3(a)(3)). 11 CFR 114.8(g)(1). These factors - which pertain
to the relationship between sponsoring organizations as to
governance, common officers and personnel, financing, and the
formation of the organizations - are to be examined in the
context of the overall relationship between sponsoring
organizations. See 11 CFR 100.5(g)(4)(i) and (ii)(A)-(J), and
110.3(a)(3)(i) and (ii)(A)-(J).
In past advisory opinions, many of the very facts that led
to a conclusion that an entity was an interconnected multi-tiered
structure of regional or State trade associations, and hence a
federation of trade associations, were the same facts that also
fit within the affiliation factors at 11 CFR 100.5(g)(4), and led
to the conclusion that, in the context of their relationship, the
federation and the State or regional trade associations were
affiliated with each other. See Advisory Opinions 1998-19 and
1995-17. That is the situation presented here, and the
Commission concludes that AKFCF and the regional trade
associations are affiliated.
Specifically, the governing documents of AKFCF indicate that
the regional trade associations have the ability to direct or
participate in the governance of AKFCF through the mandatory
presence of three high-ranking officers from each regional
association on AKFCF's Board of Directors and the requirement
that AKFCF's Principal officers must be selected from among the
other directors or from past or current officers of a regional
association. See 11 CFR 100.5(g)(4)(ii)(B). In view of the
required composition of AKFCF's Principal officers and of the
remainder of AKFCF's Board, which manages and directs AKFCF, the
regional associations also have the ability to hire, demote, or
otherwise control AKFCF's officers and decisionmaking employees.
See 11 CFR 100.5(g)(4)(ii)(C). Moreover, this governance
structure indicates an overlap between the current directors of
AKFCF and the current and former officers of the regional
associations. See 11 CFR 100.5(g)(4)(ii)(E) and (F). Finally,
AKFCF was established by the regional associations that were in
existence at the time of its formation. See 11 CFR
100.5(g)(4)(ii)(I). The Commission also notes that the
franchisee-members of the regional associations elect the
individuals who, by virtue of AKFCF's by-laws, automatically
become the majority of AKFCF's directors, thus further indicating
a direct relationship between the franchisee-members and AKFCF,
via the regional associations.
2. May AKFCF or AKFCF PAC solicit the owners and executive and
administrative personnel of the incorporated franchisee-members
of the domestic regional associations, and the families of those
individuals, for contributions to AKFCF PAC? May AKFCF or AKFCF
PAC solicit contributions from unincorporated franchisee-members,
including individuals, of the domestic regional associations?
Yes, under the conditions described below, AKFCF and AKFCF
PAC may solicit the owners and executive and administrative
personnel of the incorporated franchisee-members of the domestic
regional trade associations, and the families of those
individuals, for contributions to AKFCF PAC. AKFCF and AKFCF PAC
may also solicit contributions from unincorporated franchisee-
members, including individuals.
An incorporated connected organization and its SSF are
subject to restrictions as to the persons who may be solicited
for contributions to the SSF. 2 U.S.C. 441b(b)(4)(A), (C), and
(D); 11 CFR 114.5(g)(1), 114.7(a), and 114.8(c). Specifically,
under 11 CFR 114.8, a trade association or its SSF may not
solicit contributions from member-corporations themselves, but
may solicit contributions from the stockholders and executive and
administrative personnel, and
their families, ("solicitable class") of the member-corporations
that separately and specifically approve the solicitations and
that have not approved a solicitation by any other trade
association for the same calendar year. 11 CFR 114.8(c).5
Section 114.8(g)(2) provides that, under those conditions, a
federation of trade associations or its SSF may also solicit
contributions from the solicitable class of the incorporated
members of its affiliated trade associations. Thus, so long as
AKFCF receives prior approval on an annual basis from an
incorporated franchisee-member of one of the domestic regional
associations, AKFCF or its PAC may solicit that member's
solicitable class for contributions to AKFCF PAC.
The provisions governing solicitations by membership
organizations for contributions to an SSF apply when a trade
association or a federation of trade associations solicits
contributions from members that are individuals or unincorporated
business entities.6 11 CFR 114.7(c). Individuals who are
franchisee-members of the domestic regional associations, and the
families of these individuals, may be solicited for contributions
to AKFCF without the need to seek and obtain prior approval. 11
CFR 114.7(a) and (c). Unincorporated entities that are
franchisee-members of domestic regional associations may also be
solicited without the need for prior approval. AKFCF or AKFCF
PAC may address solicitations for contributions from
unincorporated franchisee-members to the one or two individuals
who normally represent the unincorporated franchisee-member in
its dealings with AKFCF or the regional association. See
Advisory Opinions 1997-22 and 1995-27. The solicitation may ask
for contributions only from the unincorporated entity itself, not
from the one or two individual representatives or from the
stockholders or executive or administrative personnel of the
member, unless such individuals qualify as members in their own
right. See Advisory Opinions 1995-27 and 1988-03.7
The Commission expresses no opinion regarding the
application of the
Internal Revenue Code to the proposed activities because these
topics are not within the Commission's jurisdiction.
This response constitutes an advisory opinion concerning the
application of the Act and Commission regulations to the specific
transaction or activity set forth in your request. See
2 U.S.C. 437f. The Commission emphasizes that, if there is a
change in any of the facts or
assumptions presented, and such facts or assumptions are material
to a conclusion presented in this advisory opinion, then the
requestor may not rely on that conclusion as support for its
proposed activity.
Sincerely,
(signed)
Scott E. Thomas
Chairman
Enclosures (AOs 2001-07, 2000-15, 1998-19, 1997-22, 1995-27, 1995-
17, 1988-03, 1978-39,
and 1977-44)
_______________________________
1 AKFCF consists of seven domestic and three international
regional associations. The seven domestic regionals are
Southeast, Northeast, Great Lakes, Upper Midwest, Northwest,
Southern California, and Southwest. The international regionals
are Caribla (Caribbean and Latin America), Canada, and Mexico.
You state that members of the international regional associations
will not be solicited for contributions to AKFCF PAC and that
"non-U.S. Region officers are not on the AKFCF PAC Board."
2 A Director "must be and remain" either (i) a "Principal
officer" as described by the AKFCF By-laws; or (ii) a person
franchised by the KFC Corporation, or by a KFC licensee or
affiliate, to operate a KFC food outlet, or a shareholder or
principal officer of such franchisee. That director must also be
a member in good standing of the regional association that
appointed him or her, and not an employee of KFC Corporation's
parent company or its affiliates. AKFCF By-laws, Section 4.3.
3 In each of the seven domestic regional associations, the
requirements for all of the membership classes consisting of
franchisees include the obligation to pay annual dues.
4 The Explanation and Justification for the definition of trade
association at 11 CFR 114.8(a) states: "The general definition of
a trade association is based on the treatment in the tax code of
business associations. See Regulation Section 501(c)(6) of the
Internal Revenue Code of 1954." Federal Election Commission
Regulations, Explanation and Justification, House Document No. 95-
44, 95th Cong., 1st Sess. at 112 (1977). Neither AKFCF nor any
of the regional associations files with the IRS as an entity
exempt from taxation under 26 U.S.C. 501(c)(6) because of an IRS
interpretation, deferred to in National Muffler Dealers
Association, Inc. v. U.S., 440 U.S. 472 (1979), of the meaning of
"business league" as used in that section. Under 26 CFR
1.501(c)(6)-1, an association's activities must be "directed to
the improvement of business conditions of one or more lines of
business," and the IRS has determined that an association that
confines its membership to dealers in a particular brand name
does not qualify as a "business league." Nevertheless, the
wording of the Explanation and Justification of 11 CFR 114.8(a)
merely provides a description of the type of organization that
qualifies as a trade association and, by doing so, makes clear
that Commission regulations do not require that the association
qualify for a tax exemption under 26 U.S.C. 501(c)(6). As
indicated above, the governing documents of AKFCF and the
regional associations, as well as other information provided by
you, indicate that the entities behave as non-profit, tax-exempt
501(c)(6) organizations. See Advisory Opinion 1978-39
(Commission referred to the International Association of Holiday
Inns, Inc., an association comprised of Holiday Inn franchisees,
as a "trade association").
5 The requirements for separate and specific approval are
described in 11 CFR 114.8(d) and (e).
6 Such entities would include partnerships, and those LLCs that
do not elect to be treated as a corporation by the IRS and do not
have publicly traded shares. See 11 CFR 110.1(g)(2) and (3); see
also Advisory Opinion 2001-07.
7 AKFCF may also solicit contributions from the executive and
administrative personnel (and families thereof) of the regional
affiliates. 11 CFR 114.8(i)(2); Advisory Opinion 2000-15. See
also 11 CFR 114.1(c) for the definition of "executive or
administrative personnel."