Corporate America on the stump.

It's election year, and your CEO's itching to throw company support behind a pro-business candidate. But before you cut that check, bone up on the intricacies of federal election law.

You're the CFO of a company with rapidly growing interstate business in a highly competitive market. The CEO walks in and vents her frustration about the "unresponsive and uninformed bureaucrats and politicians" she says are compromising the very future of the company. She states in no uncertain terms that she wants to change things, beginning with the present congressional delegation, and she wants to raise the level of understanding about the local community's economic stake in the company's future profitability. She's prepared to act and wants a plan now. But first she wants to know what the company is allowed to do. What do you tell her?

Contrary to conventional wisdom, corporations can put their political two cents in. In fact, in spite of the ban on direct corporate contributions to federal candidates, federal law allows companies to engage in political activities that range from spending money on "educational" activities for specific political causes to directly soliciting campaign contributions from shareholders and senior corporate personnel.

There are several key concepts, however, that you need to keep in mind to successfully navigate the sometimes tricky waters of the federal election law. Your company can say and do much more with its executives, senior administrative personnel, shareholders and their families (the so-called "restricted class") than it can with its employee corps (the "nonexempt class") or the general public. And as long as the company engages in "issue advocacy" where the general public is concerned - that is, educating the public on business issues - rather than "express advocacy," which means championing a named candidate, the company can spend its money within the bounds of federal election law. Given this framework, your company has several options for lending its political support.

Helping to elect public officials may be the most direct way for your company to get action on its concerns. The law allows your company to communicate directly with the restricted class to expressly advocate for an identified candidate. And you can coordinate the content and distribution of the materials with the campaign of the company's target candidate, although you risk "contaminating" subsequent communications to the nonexempt class and the general public, where this kind of coordination isn't permitted.

Your company can also directly solicit its restricted-class members to make individual contributions. In federal Senate and House races the limit on individual contributions is $2,000 ($1,000 for the primary, whether or not one occurs, and $1,000 for the "final"). Spouses and children can contribute separately. Although your company is subject to the limitations of soliciting only the restricted class and the prohibition against bundling (see box on page 49), its solicitation can generate significant and visible support for a candidate.

You should exercise some caution, however, even when you're communicating with the restricted class. The communications should express the corporation's views. Therefore, you can't simply reproduce materials prepared by the candidate's organization, although you may use brief quotations from the candidate.

Your company must pay to produce the communication. If it spends more than $2,000 per election on communications advocating the election or defeat of a candidate, you'll have to report that cost to the Federal Election Commission (see box on page 50).

Note that you can't "facilitate" the making of contributions to a campaign by providing contributors with pre-addressed or stamped envelopes in which to send contributions. Nor can your company's executives use company stationery to solicit contributions, unless they reimburse the company for the use of the letterhead. The company may, on the other hand, provide contributors with the campaign's address and request that they send contributions directly to the campaign. You can even send contributors follow-up reminders to pay any pledged contributions.

THAT PERSONAL TOUCH

Another idea is to invite the candidate to the company offices, but certain restrictions apply to candidate appearances before both the nonexempt and restricted classes. The rules governing candidate appearances on site are based on the distinction between express advocacy and issue advocacy. If a candidate appears before the nonexempt class, your corporation can't endorse the candidate or solicit contributions on the individual's behalf.

Nevertheless, an "all-employee" reception can still allow a candidate to strengthen his or her political presence and convey support for the employees' industry. For example, in addition to asking the employees to vote for him or her, the candidate and his or her representatives may solicit contributions during the reception. Although neither the corporation nor the candidate can collect contributions during the event, the candidate's staff can pass out envelopes.

But there's a downside to sponsoring a favored candidate's appearance before the nonexempt class. To preserve the requisite nonpartisan nature of the event and avoid implicit endorsement, your company must make its premises available to any challengers who request the opportunity to address employees. Equal time and comparable use of company facilities are necessary. Incidentally, you also need to be careful about coordinating with the candidate's campaign beyond the particulars of the event, because otherwise the independent nature of the event could be questioned.

In contrast, during a reception with the restricted class, the company can freely express its views about the candidate and the opposition, and in this case, it can solicit contributions for the candidate. Yet, the prohibition against the company's collecting contributions at the event itself stands. No officer or other corporate representative can collect contributions during the reception. That activity transforms the reception from a protected communication to a fundraising event. But as with receptions involving the nonexempt class, the candidate or his or her representatives are free to collect contributions.

As with a nonexempt class event, your company is allowed to foot the bill for a restricted-class event. Unlike nonexempt-class expenditures, however, you'll have to report aggregated restricted-class expenditures above $2,000 per election to the FEC (see box on page 50).

The structure, format and timing of the restricted-class event are all permissible topics your company and the campaign staff can discuss before the event. You can also talk about other campaign strategy issues without the event being treated as an in-kind contribution, although, again, such strategy discussions can potentially contaminate future corporate expenditures.

RALLYING TO THE CAUSE

Your company is also entitled to voice its views on particular issues. In fact, no area has seen a greater expansion of lawful corporate political activity than issue advocacy. The driving agent of the change has been the U.S. Supreme Court, which has applied the free speech provision of the First Amendment to severely limit government restrictions on expenditures viewed as enlarging the public's understanding of current issues. For example, corporations are constitutionally entitled to spend money on referendum campaigns that affect their business.

Thus, while your corporation can't spend its funds directly to elect a particular candidate, you can bring a certain issue and the candidates' views on that issue to the public's attention. For example, you can publish a "voter guide" on an issue that's important to your company and its employees. To maintain the distinction between express and issue advocacy, the company-sponsored voter guide and presentation of the candidates' voting records can't overtly advocate the election or defeat of a candidate. Therefore, these publications must avoid words and phrases such as "vote for," "Smith for Congress" and "vote against."

Similarly, if the statement sends an unmistakable message in favor of or in opposition to one side or the other, you've crossed the line dividing issue from express advocacy. Moreover, the closer the release of the guide is to the election, the more likely the FEC will construe such implicit language as constituting express advocacy.

The other major pitfall to avoid is coordinating the production of the guide too closely with a candidate's campaign. Although you can contact the competing campaigns to obtain voting record information, if you're cooperating, coordinating or consulting with the candidate on the content or distribution of the guide, you risk tainting the independent nature of these materials and transforming them into an impermissible contribution. For similar reasons, the format and presentation of the information in the guide must treat each candidate equally and may not indicate, or otherwise implicitly communicate, a preference for one over the other. In fact, the FEC recently initiated an action against the Christian Coalition on just this point, claiming that the Christian Coalition's voter guides crossed the line between issue and express advocacy.

Although the content and distribution of the guide can't be coordinated with the candidate, it can still benefit the candidate. For example, your company can tailor the guide to highlight certain key issues. Among certain groups, such as employees in an industry that stands to benefit from a particular piece of trade legislation, you may not need to say anything else to influence them than stating where a candidate stands on that issue.

Your company can also underwrite certain kinds of issue advertisements. As long as the advertisements relate to issues of general business or economic concern and don't refer to a candidate, campaign or upcoming federal election, the material won't constitute impermissible corporate contributions.

Employees, noncorporate members and stockholders can be permitted to use corporate facilities for volunteer political activities. However, the use must be "incidental," which means it can't interfere with the company's normal activity. Use of corporate facilities is presumed to be "incidental" if it doesn't involve more than one hour per week or four hours per month of the volunteer's time.

When volunteer activities are incidental, the employee is required to reimburse the corporation only for any increases in overhead or operating expenses, such as long-distance telephone charges. However, if the employee exceeds the incidental-use threshold, or actually produces materials, such as fliers advertising a fund-raising event, the individual must reimburse the corporation for the usual or normal rental fee for the use of the facilities, or for the cost of producing the fliers. These payments then count toward the employee's federal contribution limit for the candidate.

PAC IN THE SADDLE AGAIN

Political action committees are an increasingly common and accepted - if controversial - part of the political landscape, and they offer a direct, legally sanctioned vehicle through which a company can influence the political process. In combination with other initiatives, establishing and administering a PAC could add value to your company's political strategy.

Through a PAC, your company can solicit funds that can be contributed directly to a candidate and obtain the benefit of the higher PAC contribution limit of up to $5,000 per candidate (for PACs that contribute to several candidates) for each of the primary and general elections. Single-candidate PACs are limited to $1,000. When a company sets up a PAC, it can absorb the cost of establishing and administering it. Under federal tax laws, however, such costs aren't deductible as ordinary and necessary business expenses.

As you can see, companies can choose a variety of options to influence the political environment in which they operate. While the range of permitted corporate activities may be far wider than most people think, for every corporate political act permitted by federal law, there's a corresponding caution that limits its reach. And with state and local races, you need to take into account additional layers of laws and regulations. Thus, as your company implements proactive political initiatives, your advice to your boss should be to exercise care and prudent judgment.

The authors gratefully acknowledge the contribution of Andrew Glass, a summer associate at Kirkpatrick & Lockhart, to the preparation of this article.

RELATED ARTICLE: DON'T BUNDLE UP 

Bundling means handling separate contributions so they're viewed as a single contribution. If you or your company is involved in soliciting contributions, avoid bundling, since the corporation could be seen as a conduit. Contributions passed through a conduit are considered contributions from it. Therefore, bundled contributions transmitted by a corporation are illegal.

Nevertheless, a corporate executive who occupies a significant position in the candidate's campaign and who's authorized by the candidate to do fundraising can legally bundle contributions if he or she is acting as an individual and not as a company representative, and if the person doesn't exercise discretion or control over the contributions. A corporate executive who meets these criteria will be considered an agent of the campaign, not a conduit. However, the FEC closely scrutinizes bundling practices by corporate personnel, so avoid handling contribution checks and request that contributions be sent directly to the candidate instead.

RELATED ARTICLE: WHEN TO REPORT THAT CAMPAIGN BROCHURE

Your company is required to file certain reports with the Federal Election Commission if the cost of communicating with its restricted class (made up of its executives, high-level administrative personnel, shareholders and their families) exceeds $2,000 for any federal election, excluding costs for issue-related or noncampaign communications. The $2,000 threshold applies separately to primary elections and to general elections for federal office, so your corporation can spend up to $2,000 for a primary and another $2,000 for a general election without reporting these expenditures.

Once the corporation surpasses that limit, you must file detailed quarterly reports for each quarter a regularly scheduled general election is held, and another report 12 days before the primary or general election. The reports must contain the type, cost, date and recipient of each communication.

Plus, you must report the costs for legal or accounting services provided to a campaign for the purpose of ensuring the campaign's compliance with federal election and tax laws. Your company is permitted to provide these services without having them count as in-kind contributions only if it uses its own employees - not additional employees hired for the occasion - to render the services.

Mr. Macdonald is a partner and Ms. McNulty is an associate in the Boston office of Kirkpatrick & Lockhart, LLP.