[sudo-discuss] Legal Status

[William Budington]

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