[sudo-discuss] Incorporation

[Rabbit]

To consider:
If we purchase part of 2141 Broadway, would that be under the umbrella of
the new Sudo Room organization/corporation, or would that be another new
and separate entity which Sudo Room pays rent to (and/or owns equity in)?


On Sun, Oct 6, 2013 at 10:52 AM, Eddan Katz <eddan at clear.net> wrote:

> I am a lawyer, but this still isn't legal advice.
>
> Following up on the excellent info Sudo folk have been sending around on
> this thread (thx, Yardena, for starting it), I wanted to hone in on a newly
> emerging variant - the cooperative corporation. I will be meeting someone
> from the East Bay Community Law Clinic (EBCLC) who specializes in setting
> these up. I'll report on what exactly this entails after my meeting - seems
> intriguing.
>
> Also, I wanted to add to the overall description of what considerations
> need to be taken into account in making our decision(s). I think there are
> 3 axes that may help folks compare the options: (1) Cost/Time; (2)
> Decision-making structure; (3) Tax exemption.
>
> 1. Cost/Time
> Regarding cost/time - we should consider the fact that any LLC has to pay
> an annual fee to the Secretary of State. 501(c)(...) are exempt from this.
> Non-profits take a while to get approved though, as has already been
> mentioned - though this waiting period can be shortened if there is an
> active donor looking to donate (like a philathropic org). The fact that
> Sudo Room is not your average non-profit would, on the other hand, make the
> application process less striaghtforward.
>
> 2. Decision-Making Structure
> I think we may be underestimating the significance of this prong. Existing
> corporate and non-profit structures are not well-equipped to handle
> non-hierarchical horizontal decision-making, as we have tried to develop
> it. Notably, regarding B Corps and the like, there is nothing different
> about their decision-making structure from any other corporation - except
> for the threshold of social values that motivate business decisions
> according to the "triple bottom line."  This is what I am most interested
> in learning about from the EBCLC & the Sustainable Economies Law Center
> (SELC). I'm doing a semester-length series workshop with Janelle Orsi of
> SELC on the various aspects of what she calls "sharing economy" law.
>
> 3. Tax Exemption
> I think it would be useful to think about the non-profit tax exemption
> status as being relevant not only for its cost, but also for the accounting
> reporting requirements attached to non/profits (&/vs.) LLCs. It's not just
> getting donations, it's also about what financial (& political)
> transactions need to be reported to the Secretary of State. Many of the
> transactions in Sudo Room's brief history so far have not been recorded nor
> kept track of in any useful way for reporting.
>
>
> Finally, as I've tried to suggest when the subject has come up before - I
> think we'd be best off if we thought of the various groups and projects
> under different incorporation frameworks. This tax structure diversity
> could make the way our different initiatives develop more flexibly and
> appropriately for their more specific objectives.
>
>
> sent from eddan.com
>
> On Oct 5, 2013, at 7:40 PM, GtwoG PublicOhOne <g2g-public01 at att.net>
> wrote:
>
> >
> > A few things about incorporation (I am not a lawyer, this is not legal
> > advice):
> >
> >
> > S corps: Last I checked these were limited to 35 owners, all of whom had
> > to be US citizens.
> >
> > C corps: The entity most people think of when they say "corporation."
> > No limit to the number of owners, and owners may also be persons other
> > than US citizens.
> >
> > B corps: A "B-corp" is a corporation that states a set of intrinsic
> > values & principles as part of its structure, supplementing or
> > supplanting the default assumption that the primary purpose to be served
> > is to increase shareholder value.
> >
> > In each of the above structures, ownership shares are equal to dollars
> > invested, and the vote inheres in the shares rather than in the persons
> > (thus you can have unequal voting power based on share ownership).
> >
> > There are possible mechanisms for a one-person/ one-vote system, based
> > on having two or more classes of shares, such as "preferred shares" and
> > "common shares."  This enables you to have one class of shares that has
> > voting power, and one class of shares that does not have voting power
> > but has preference in allocation of dividends when profits are earned.
> > Thus for a one-person/ one-vote system, you'd sell only one share of
> > voting stock to each person, and as many shares of non-voting stock to
> > each person as matches their financial investment.  Setting up this type
> > of system requires an attorney to ensure that it meets legal
> > requirements to protect the owners and investors.
> >
> >
> > In addition there are three types of co-operative structures, which are
> > also incorporated entities that confer the same "limited liability"
> > protections as other types of corporations:
> >
> > "Consumer coops" also include most worker-owned coops, where individual
> > persons are the members and owners.
> >
> > "Producer coops" serve individuals and companies that produce goods &
> > services, such as a dairy marketing coop that serves dairy farmers.  In
> > this case, the members have some common interest in shared productive
> > resources such as infrastructure.
> >
> > "Central organizations" are coops that have other coops as members, such
> > as a network of coops in a geographic area or common field of business,
> > or sharing infrastructure in the manner of a producer coop whose members
> > are coops.
> >
> > In each of these cooperative structures, you have membership shares,
> > allocated one share to each member for a fixed price, such that each
> > member has one share and one vote.  Thus the one-person/ one-vote
> > principle is built into the structure without need of multiple classes
> > of shares.
> >
> >
> > LLCs:
> >
> > LLCs were originally designed as hybrid structures to accommodate groups
> > of professionals such as doctors and lawyers engaged in group practice,
> > but have since become used for other types of business, real estate
> > ownership, etc.  LLCs were deliberately designed to be flexible in their
> > legal structure and methods of governance.  In an LLC, the vote is also
> > separate from the investment share, such that you can create a
> > one-person/ one-vote system, with less complication than in a C-corp or
> > S-corp.
> >
> >
> > One thing to be careful of, for any type of legal entity, and this will
> > require legal advice to get it right, is to make sure that your share
> > price or membership price does not increase in a manner that you can't
> > control, such as to make it impossible for new persons to buy in.
> >
> > This can occur when the primary asset is real estate, as the "assessed
> > value" of the property increases over time.  This was historically a
> > problem in some forestry coops in the Pacific Northwest, and some other
> > cases that are known in the literature.  I'm inclined to believe that
> > setting up a property as a "land trust" or similar entity, may be a
> > mechanism to hold the asset value of property more stable against
> > speculative increases in nearby property prices, and so reduce these
> > risks, but this needs to be checked with a lawyer.
> >
> >
> > Corporations and cooperatives, and possibly LLCs, have Boards of
> > Directors elected by the shareholders or members, and have three
> > positions that are required by law (any person may hold one or more of
> > these positions):
> >
> > = Board of Directors: Elected directly by vote of the shareholders or
> > members (typically every two years).  Makes policy decisions and selects
> > the positions below.  For practical reasons the number of Directors
> > should be small enough to be able to meet without scheduling
> > difficulties, for example 5 - 7 people.
> >
> > = CEO: Chief executive officer.  Signs most legal documents for the
> > entity, can make other routine decisions per authority delegated by the
> > Board.
> >
> > = CFO or Treasurer: Chief financial officer.  Responsible for the
> > entity's financial documents and statements.
> >
> > = Secretary:  Responsible for receiving and for filing of routine
> > documents with various state agencies, and for maintaining
> > legally-required records of the organization.
> >
> > = Attorney of Record, or Agent for Service of Process:  This is not a
> > "CXO" type position, but is typically required to ensure that any
> > documents relating to legal processes, can go to a specific person at a
> > specific address.
> >
> >
> > All of the above structures, when configured for one-person/ one-vote,
> > are representative democracies.
> >
> > To configure as a direct democracy of the members, Bylaws would be
> > enacted by the initial incorporators or first Board of Directors, such
> > that on specified issues, the Board is bound to act only in accord with
> > the direct votes of the members.
> >
> > Thus you could empower the Board to make certain types of decisions on
> > its own, and other types of decisions only in accord with direct
> > democratic votes of the members.
> >
> > When deciding on a structure, it's useful to consider the distinction
> > between the types of decisions that can be handled by "delegated
> > authority" such as by the Board, CEO, CFO, and Secretary, and the types
> > of decisions that you'd prefer to handle by direct vote of the members.
> >
> > It's also useful to consider the threshold of direct vote required to
> > pass a proposal.  The default options in most types of structures are
> > 50%+1 for most types of decisions, and 2/3 majority for changes of the
> > Bylaws and other structural decisions.  On the other hand, pure
> > consensus sets a 100% threshold, and varying degrees of near-consensus
> > can set other thresholds such as 80% for specified purposes.
> >
> >
> > One thing to keep in mind for Federal 501 tax-exempt organizations
> > (religious, scientific, educational, or charitable entities) is that the
> > law prohibits persons in decision-making capacities from receiving
> > monetary benefits from the entity.  In discussions of
> > democratically-managed entities, this is usually interpreted to mean
> > that workers/employees/contractors of an entity, are not allowed to have
> > voting power, since they receive wages/salaries/etc. from the entity.
> > So to the extent that the entity expects to pay any of its members for
> > services they provide, or pay out any kind of dividendsre or
> > retained-earnings distributions, this issue will need to be considered,
> > and it also requires input from an attorney to get it right.
> >
> >
> > -G.
> >
> >
> > =====
> >
> >
> >
> > On 13-10-05-Sat 6:13 PM, Yardena Cohen wrote:
> >> This was meant to get sent out after Wednesday's meeting. Sorry it took
> so long.
> >>
> >> In short, we are coming close to filing Sudoroom as a California
> >> corporation. We want to do this as consensually and horizontally as
> >> possible, but also soon. As in, the next few weeks. Let this e-mail
> >> thread be your official opportunity to lobby objections, concerns and
> >> desires. Here is some background for clarity, and some homework.
> >>
> >> PROFIT vs NON-PROFIT: this is the distinction that gets talked about
> >> most often, but actually seems to be the most remote/non-issue
> >> question right now. 501 (c3, c5, c*) is a chapter of the Federal IRC,
> >> meaning it ONLY relates to Federal income taxes. You ask the IRS to
> >> recognize you, and they take a few years to start letting you keep
> >> your money. But we're NOT AT THIS STAGE YET because legally we DON'T
> >> even EXIST YET.
> >>
> >> INCORPORATION: this is how you exist. It is not a federal process -
> >> you ask your U.S. State to recognize you. Each state does it a little
> >> differently. Generally the old traditional type of corporation is a
> >> C-Corp, and newer types are LLC and B-Corp. This is something we all
> >> need to learn more about! We need to decide the pros and cons of each
> >> type. That is our homework assignment #1.
> >>
> >> WRITING OUR ARTICLES: when we file papers we will have to submit
> >> Articles/Bylaws. This will be a legal document describing who we are
> >> and what the terms and rules of our incorporation are. It is
> >> OPEN-ENDED meaning very hackable but also intimidating. It's been
> >> proposed that we use Noisebridge's articles as a starting point and
> >> edit them to our liking to make them most Sudo-appropriate. It's on
> >> our wiki now: https://sudoroom.org/wiki/Bylaws_in_progress  Reading,
> >> understanding, and hacking at this document is homework assignment #2!
> >>
> >> MEMBERSHIP: observant readers will note incorporation implies there
> >> are "owners." We have to figure out once and for all how to decide
> >> membership. This is it, folks. Time for us all to step up and ask "who
> >> the fuck are we?"
> >>
> >> So, in summary, the next steps are:
> >>
> >>   1) Decide on LLC vs C vs B Corp
> >>   2) Write articles/bylaws to file with
> >>   3) who the fuck are we?
> >> _______________________________________________
> >> sudo-discuss mailing list
> >> sudo-discuss at lists.sudoroom.org
> >> http://lists.sudoroom.org/listinfo/sudo-discuss
> >
> > _______________________________________________
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