Federal Election Commission Main Page
FEDERAL ELECTION COMMISSION
Washington, DC 20463
March 10, 2006
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
ADVISORY OPINION 2006-02
Robert F. Bauer, Esq.
Judith L. Corley, Esq.
Perkins Coie
607 14th Street, N.W.
Washington, D.C. 20005-2011
Dear Mr. Bauer and Ms. Corley:
We are responding to your advisory opinion request on behalf
of Robert Titley, concerning the application of the Federal
Election Campaign Act of 1971, as amended (the "Act"), and
Commission regulations to the establishment of a limited
liability company ("the Company") that will express views on
candidates and issues, and to the establishment by the Company of
a separate segregated fund ("SSF") that will solicit
contributions from individuals who will pay dues to the Company
in order to become "members." You ask whether, under the Act and
Commission regulations, the Company is a "membership
organization," and whether the dues-paying individuals qualify as
"members," so that the Company may make express advocacy
communications to those individuals and solicit contributions
from them for the Company's SSF.
The Commission concludes that the Company does not qualify
as a membership organization under the Act and Commission
regulations, and the dues-paying individuals are therefore not
members. Accordingly, the Company may not make express advocacy
communications to the dues-paying individuals or solicit them for
contributions to the SSF, unless such individuals are otherwise
within the Company's restricted class.
Background
The facts presented in this advisory opinion are based on
your letters dated November 28, 2005, and January 18, 2006.
Company Structure
Robert Titley proposes to establish the Company as a limited
liability company that would provide a website as a vehicle for
the expression of positions on issues and candidates. The
website would contain a portion accessible by the general public
and another portion accessible only by individuals, whom you call
"Participating Members," who pay dues to the Company.
The Company will be a for-profit business and will elect to
be taxed as a corporation for Federal income tax purposes. Mr.
Titley and other individuals are the Founders of the Company.
They developed the plan for the Company, are "committing both
management expertise and capital to the project," and will own
the Company. Only they will control the business affairs of the
Company. The Founders will make capital contributions of cash,
assets, or services. Their initial capital contributions will
provide the necessary start-up capital and other resources to
establish the Company's website, implement the Company's
marketing plan, pay the legal and accounting expenses associated
with formation of the new enterprise, and obtain the initial
inventory of contents and merchandise that will be provided or
sold by the Company to users of the website. The Company's
profits, losses and distributions of its distributable cash will
be allocated among the Founders in proportion to their ownership
interest. The Company's Operating Agreement will set forth the
rights of each Founder with respect to the allocation of profits,
losses, and distributions and may also contain transfer
restrictions, covenants with respect to future capital
contributions by Founders, and a description of each Founder's
right to participate in management decisions.1
Revenue will be generated through the payment on-line of
annually assessed dues of no less than $50 from a second group of
individuals, the "Participating Members." The "Participating
Members" will have no rights under State law to manage the
business affairs of the Company, and they will not participate in
any allocation of profits, losses, or distributions. Their
rights will be limited to: (1) access to features on a portion of
the website accessible only to them; (2) participation in the
Company's Policy Board, which is empowered to help shape the
issue positions expressed on a portion of the website available
to the public (including the endorsement of candidates); and (3)
the right as Policy Board members to influence the approval or
disapproval of the Company's proposals as to the recipients of
SSF contributions.2
The on-line dues payment form will advise "Participating
Members" of these rights. The only requirement to become a
"Participating Member" will be the payment of dues, and a
delinquent "Participating Member," after an appropriate grace
period, will be barred from access to the website's members-only
portion and participation in the Policy Board. Notwithstanding
the payment of dues, the Company may expel any "Participating
Member" who becomes disruptive or fails to adhere to the
website's "etiquette guidelines" (which are part of the terms of
use of the site, agreed to by all members).
The Website
The actual website has not been designed, but your request
provides a description of both the public and members-only
portions of the site. The public portion will contain
information about the purpose of the Company and the benefits of
membership, ads for merchandise, general information about issues
identified by the "Participating Members" as important to them,
and candidate endorsements. The members-only portion will
include information about the SSF and how to participate in it;
information about the candidates supported by the SSF and the
reasons they are supported; on-line polling of the members to
help define issues important to them; development of a platform
of issues important to the members, including white papers and
detailed background materials; news resources and editorials
about those issues; ads for issue-related merchandise not
available on the public portion and ads for entertainment events;
music content; issue-related interviews of, and commentary by,
music celebrities; on-line civics educational tools; and
fundraising for charities selected by members and artists.
Question Presented
Will the Company qualify as a "membership organization"
under the Act and Commission regulations and, if so, will the
"Participating Members" qualify as "members" so that the Company
may solicit them for contributions to its SSF and make express
advocacy communications to them?
Legal Analysis and Conclusions
No. For the reasons stated below, the Company will not
qualify as a membership organization under the Act and Commission
regulations. Therefore, the "Participating Members" will not
qualify as "members" who can be solicited for contributions to
the Company's SSF and receive express advocacy communications
from the Company.
Because the Company will elect to be treated by the Internal
Revenue Service as a corporation, it must be considered a
corporation under Commission regulations at 11 CFR 110.1(g)(3).
Therefore, it will be subject to the prohibition on corporate
contributions and expenditures at 2 U.S.C. 441b(a).3 There are
several exceptions to that prohibition at 2 U.S.C. 441b(b).
One of the exceptions to the prohibition permits a
corporation to use corporate treasury funds to solicit the
corporation's restricted class for contributions to the
corporation's SSF.
2 U.S.C. 441b(b)(4); 11 CFR 114.1(j); see also 2 U.S.C.
441b(b)(2)(C). The restricted class of a corporation includes
the corporation's executive and administrative personnel, and
their families, as well the corporation's stockholders, and their
families. 2 U.S.C. 441b(b)(4)(A) and 11 CFR 114.5(g). The
restrictions on corporate solicitations, however, do not prevent
an incorporated membership organization from soliciting
contributions from its "members"4 and their families.
2 U.S.C. 441b(b)(4)(C) and 11 CFR 114.7(a). The definitions of
"membership organization" and "member" are specified in
Commission regulations at 11 CFR 100.134(e) through (g) and
114.1(e)(1) through (3).
Another exception to the prohibition on corporate
contributions and expenditures permits corporations and
incorporated membership organizations to communicate with their
restricted classes on any subject, including communications
expressly advocating the election or defeat of a clearly
identified Federal candidate. 2 U.S.C. 441b(b)(2)(A) and
431(9)(B)(iii); 11 CFR 114.3(a)(1) and (2), 114.3(c), 100.134(a),
and 114.1(j). Certain Federal election-related communications
made to those outside the restricted class, including
endorsements, are limited or prohibited. See 11 CFR 114.4.5
For a corporation to qualify as a membership organization,
it must satisfy two requirements. First, the corporation must be
a "trade association, cooperative, [or] corporation without
capital stock." 11 CFR 114.1(e)(1); 11 CFR 100.134(e). Second,
the corporation must satisfy all six criteria set forth in 11 CFR
114.1(e)(1)(i) through (vi); see also 11 CFR 100.134 (e)(1)-(6).
The Company will not satisfy either of these two requirements.
First, the Company will be neither a trade association nor a
cooperative. The question remains whether the Company is a
corporation without capital stock. See 2 U.S.C. 441b(b)(4)(C)
and 431(9)(B)(iii). For the purposes of the Act and regulations,
the Company operates as a for-profit corporation owned by
stockholders. It has elected corporate treatment under 11 CFR
110.1(g)(3), and is owned exclusively by the Founders, who will
make initial and subsequent capital investments. The Founders
will receive profits and distributions of cash from the business,
and incur losses, in proportion to their individual ownership
interests. Thus, their ownership interests are equivalent to
their owning stock in the Company.
Furthermore, the Supreme Court indicated that the rationale
for the exception for membership organizations at 2 U.S.C.
441b(b)(4)(C) is because membership organizations do not have
stockholders, and their members are, in part, analogous to
stockholders of stock corporations. FEC v. National Right to
Work Committee, 459 U.S. 197, 204 (1982) (quoting from the 1976
floor statement from the provision's principal sponsor, Senator
James Allen, at 122 Cong. Rec. 7198 (1976)). Thus, the rationale
for the exception for the solicitation of members does not apply
to the Company's situation.
Second, the Company does not satisfy the first of the six
criteria for being a membership organization, i.e., the Company
is not "composed of members, some or all of whom are vested with
the power and authority to operate or administer the
organization, pursuant to the organization's articles, bylaws,
constitution or other formal organizational documents." See
11 CFR 100.134(e)(1), 114.1(e)(1)(i). Although the
"Participating Members" have the ability to help determine the
issues and issue positions presented on the website and the
candidates to be supported by the SSF, none of them, by virtue of
being a "Participating Member," will be vested with the power and
authority to operate or administer the Company.6 The Founders
and the Managers chosen by them will be the only group that
manages the business of the Company. The Founders' ownership
interests correspond to their being a class of stockholders.7
Consequently, the Company may not solicit the "Participating
Members" for contributions to the SSF, and is subject to the
restrictions in 11 CFR 114.4 as to the communications made to
them. Additionally, the Company may not place its endorsements
of Federal candidates on its website unless access to the website
is restricted to the Founders and their families and to the
Company's executive and administrative personnel and their
families. See Advisory Opinion 2000-07; 11 CFR 114.4(c)(6). The
Company, however, may solicit, and communicate on any subject
with, the individual Founders and their families, and the
Company's executive and administrative personnel and their
families. See 2 U.S.C. 431(9)(B)(iii), 441b(b)(2)(A) and (4)(A);
11 CFR 100.134(a), 114.3(a) and (c), and 114.5(g).
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)
Michael E. Toner
Chairman
Enclosure (AO 2000-07)
_______________________________
1 The Company will be managed by one or more Managers who will
have authority to manage the affairs of the Company, with the
exception of certain transactions that may require approval by
the Founders, such as a sale of nearly all of the Company's
assets or a merger with another entity.
2 The Founders and Managers may also choose, upon payment of
dues, to become "Participating Members" and participate in the
Policy Board.
3 The definition of "contribution or expenditure" includes a
"gift of money . . . or anything of value" in connection with a
Federal election. 2 U.S.C. 441b(b)(2); 11 CFR 114.1(a); see also
2 U.S.C. 431(8) and (9); 11 CFR 100.52 and 100.111.
4 Members falling within categories of persons prohibited from
contributing in connection with a Federal election, such as
foreign nationals, may not be solicited. See 11 CFR 114.7(b);
see also 11 CFR 110.20(g), and 115.2(c).
5 For example, a corporation may publicly announce an
endorsement of a Federal candidate and convey the reasons for the
endorsement only in accordance with 11 CFR 114.4(c)(6). This
section allows such an announcement to be made through a press
release or press conference if the press release or notice of the
press conference is distributed only to the representatives of
the news media that the corporation customarily contacts when
issuing a non-political press release or holding a press
conference for other purposes. Moreover, the announcement may
not be coordinated with the candidate, his agents, or his
authorized committee.
6 The ability to be polled on the selection of such issues and
on the organization's positions does not constitute the power and
authority to operate or administer the organization.
7 Because the Company does not satisfy the first criterion for
being a membership organization, it is not necessary to analyze
whether the Company satisfies the remaining five criteria. See
11 CFR 100.134(e)(2)-(6) and 114.1(e)(1)(ii)-(vi).