[sudo-discuss] Legal Status

mark burdett mfburdett at gmail.com
Thu Jul 18 11:07:59 PDT 2013


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>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>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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>>
>
>
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