[sudo-discuss] Legal Status
Andrew
andrew at roshambomedia.com
Thu Jul 18 12:25:40 PDT 2013
Keep in mind that California LLCs cost $800/year. I don't think that
changes if you are a non-profit, but I'm not 100% sure
On 07/18/2013 12:20 PM, William Budington wrote:
> 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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>>>
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