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Sweepstakes and contests online: A guideline for business owners

Online sweepstakes and contests are a great way to attract consumer interest and rev up some excitement about your company -- but it's important to understand the legal requirements of each. Otherwise, you could find your business in danger of some significant financial penalties.

Here are some basics about online promotions you should keep in mind:

The difference between sweepstakes and a contest

These terms are not interchangeable. Contests require the entrants to exhibit some sort of skill or perform some sort of task in order to win. Sweepstakes, however, do not. Winners are chosen at random from among the entrants.

For example, Google runs a "Doodle for Google" contest every year that requires entrants to submit a piece of original art with the company's name woven into the drawing. The winner -- chosen by popular vote -- is rewarded with a large scholarship. On the other hand, the famous Publishers Clearing House sweepstakes can only be won by pure luck.

The hazard of running an illegal lottery

Lotteries are big money-makers for most states, so they're tightly regulated. You need to make sure your sweepstakes or contest isn't really a lottery to avoid significant legal complications. Lotteries offer people a chance to win prizes in return for some form of consideration -- like the purchase of a ticket.

Many companies circumvent the issue by making sure that their sweepstakes always have a "no purchase necessary" option.

The importance of federal, state and platform-specific compliance

No matter what you want to run -- contests or sweepstakes -- there are rules that have to be followed. Some of them may come from the federal government, others from the state. You also have to consider the rules of each social media platform that you are using -- otherwise, you may find yourself in a legal dispute with Facebook, Twitter or some other social site.

These rules can be difficult to follow. For example, if you market a contest to children -- like the Google contest does -- you have to make sure that you're legally compliant with laws that restrict what information can be collected online from children under 13 years of age.

Running a contest or sweepstakes is still a great idea for a lot of companies -- but your business may avoid expensive litigation merely by seeking out experienced legal advice while planning online promotions.

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