[sudo-discuss] Legal Status
William Budington
bill at inputoutput.io
Thu Jul 18 12:20:46 PDT 2013
Thanks, this is really helpful info. Then we probably want to look into
becoming a California Non-Profit Corp then, rather than an LLC?
On 07/18/2013 11:29 AM, Rachel McConnell wrote:
> I'm a founding member of both Noisebridge and Ace Monster Toys, and have
> been through the incorporation and 501(c)(3) process with both. I just
> want to clarify that incorporation and federal tax exemption are two
> separate designations. Incorporation, either as an LLC or a full
> corporation, is something you do at the state level, so the state can
> identify, tax, and regulate you. The 501(c)(3) is an IRS designation,
> which gives you the ability to accept tax deductible donations. You do
> have to be incorporated in order to apply for 501(c)(3) status. I don't
> think an LLC is eligible as it's a for-profit type of incorporation; I
> think you have to be a California Non-Profit Corporation before the IRS
> will grant 501(c)(3) status, but this should be verified.
>
> Also, once incorporated, the 501(c)(3) can be applied for immediately.
> It did take both Noisebridge and Ace longer than 10 months to receive
> approval. At Noisebridge it was because the IRS was apparently baffled
> at the concept of a hackerspace and had a lot of follow-on questions. I
> think Ace just took a while to file, but also it took over a year for
> the IRS to respond. It's an annoying, tedious, and time-consuming
> process but not really that hard.
>
> Cheers,
> Rachel McConnell
>
> On 7/18/13 11:07 AM, mark burdett wrote:
>> I'd say talk to a lawyer about this first, because the typical 501(c)3
>> is a corporation - the usual route is incorporating and then awaiting
>> tax exempt status for the corporation.
>>
>> (On the other hand, an LLC could make sense if sudoroom wants to keep
>> around a non-501(c)3 entity that doesn't have all the restrictions of a
>> tax exempt org... I know some enterprising (literally) artists who have
>> created both LLCs and non-profit orgs so they can get grants and also
>> operate as a business....)
>>
>> See also
>> http://www.nolo.com/legal-encyclopedia/nonprofit-tax-exempt-status-501c3-30124.html
>>
>>
>> This section requires that you attach a copy of your articles of
>> incorporation and your bylaws
>> <http://www.nolo.com/legal-encyclopedia/nonprofit-formation-documents-articles-incorporation-bylaws-minutes-30311.html>
>> to
>> the application form. (Most nonprofits seeking 501(c)(3) status are
>> corporations. If your entity is an LLC
>> <http://www.nolo.com/legal-encyclopedia/limited-liability-company>,
>> unincorporated association
>> <http://www.nolo.com/legal-encyclopedia/five-reasons-incorporate-nonprofit-association-30266.html>,
>>
>> or nonprofit trust, you should seek the help of a lawyer
>> <http://www.nolo.com/lawyers> with experience in nonprofit tax law to
>> complete your Form 1023 application.)
>>
>> --mark B.
>>
>> On Thu, Jul 18, 2013 at 10:50 AM, Marina Kukso <marina.kukso at gmail.com
>> <mailto:marina.kukso at gmail.com>> wrote:
>>
>> thanks bill, very helpful!
>>
>> what are the advantages to filing as an LLC?
>>
>> also, i think that jenny recently had a call with james from the
>> school factory - jenny, could you possibly share some of what you
>> both discussed?
>>
>> - marina
>>
>>
>> On Thu, Jul 18, 2013 at 10:43 AM, William Budington
>> <bill at inputoutput.io <mailto:bill at inputoutput.io>> wrote:
>>
>> Hey all,
>>
>> I talked to Danny O'Brien (Noisebridge's financial functionary)
>> yesterday about the sudoroom legal status. I know this has
>> been an
>> ongoing discussion so I'm going to summarize the options we've
>> already
>> looked into and present the new information Danny has brought
>> to my
>> attention.
>>
>> *Why do we need a legal status?*
>> Over the past few months we've found various challenges to our
>> normal
>> operations since we don't have a legal status. We aren't able
>> to sign
>> up for services like Stripe without having a federal tax id. In
>> addition, since we are formally under one person's name, he is
>> liable if
>> anything happens at sudoroom. Also, we aren't able to sign up
>> for most
>> banks -- only the Community Bank of the Bay will actually give
>> us a bank
>> account with our status as a DBA. And as we've seen, Community
>> Bank of
>> the Bay is not the most web-savvy organization, and so it's hard
>> for us
>> to actually check our balances.
>>
>> *What we've looked at*
>> Our eventual goal has been to get 501(c)3 status for sudoroom.
>> This is
>> a status that would allow us to accept tax-deductible donations
>> and be
>> incorporated formally as a nonprofit. A lot of Hacker Spaces go
>> this
>> route, and it seems like a reasonable long-term goal. One of the
>> problems we've been warned of is that it takes a long time to
>> actually
>> be granted 501(c)3 status - upwards of 2 years, which can as I
>> understand be expedited to 10 months.
>>
>> Because of this delay, we've looked into some other options --
>> namely
>> being umbrella'd under another organization's 501(c)3 status.
>> This
>> would involve 10% of our revenue going to said umbrella
>> organization to
>> cover costs of the books. I've been in contact with Danny at
>> Noisebridge and Jenny has been in contact with (Steve?) at the
>> School
>> Factory and discussing if this is a possibility. It is
>> certainly one
>> way to go, but as for Noisebridge they've only umbrella'd
>> Noisetor, and
>> they didn't need a separate account for that.
>>
>> *What I've learned recently*
>> Danny mentioned that his partner is looking into nonprofit
>> status for a
>> new feminist hacker space in SF, and has investigated these
>> options as
>> well as others. In order to have a certain degree of autonomy,
>> it is
>> probably in our interests to actually not go the umbrella
>> route and
>> pursue separate legal status altogether. He also mentioned that
>> there's
>> no reason why we couldn't incorporate as an LLC or other
>> corporate
>> status before pursuing 501c3 status, and that even if it takes a
>> number
>> of years to be granted non-profit status we can transition from
>> an LLC
>> without much of a problem. There's no real disadvantage to
>> having LLC
>> status in the meantime, as I understand it. The main
>> advantage of
>> nonprofit status is tax deduction, but that is usually
>> superseded on
>> most peoples taxes by the standard deduction. The main place
>> where it
>> does make a difference is when employers do matching donations
>> for their
>> employees, then it can make a difference.
>>
>> *The plan*
>> It makes sense to me to pursue the options that would resolve our
>> short-term problems without impeding the path to our long-term
>> goals.
>> It seems to me reasonable as a short-term goal to register as
>> an LLC
>> (Jenny tells me this can be done in an afternoon and with $50
>> with a
>> drive to Sacramento), and as a longer term goal actually pursuing
>> nonprofit, 501c3 status.
>>
>> *Disclaimer*
>> There may be caveats to this plan and I'm not a lawyer.
>>
>>
>> Bill
>>
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