DBAs and LLCs and 501(c)3, oh my! (was Re: [Noisebridge-discuss] Meeting notes posted for Thu 7th)

Andy Isaacson adi at hexapodia.org
Fri Feb 8 18:48:00 UTC 2008

On Fri, Feb 08, 2008 at 09:22:24AM -0800, Matt Peterson wrote:
> An LLC appears to be the logical least-path-of-resistance at this  
> point, mostly because non-profit money tracking needs to be very  
> extensive and an unknown "thumbs up" commitment from various  
> government levels for approval.  A concern also exists on setting up a  
> non-profit correctly to factor in board member insurance.  This is not  
> to say a 501c3 isn't the best option, again just not the easiest for  
> the initial setup months.

I'd just like to expand on my thinking here, since I seem to have the
most knowledge given my shiny new Nolo press books.  (Kinda scary, eh?)

First off, if you have *ANY* willingness to help make this happen on the
legal front, please come do legal homework with me Saturday around 4 PM
in the mission!  I don't want to be the sole resource here.  Exact
location to be announced, email for details.

Starting out with a DBA gets us a bank account and the beginnings of an
official group identity.  (Given that we don't want to make interest on
our bank account for tax reasons, and so we'll have several thousand
dollars sitting there doing nothing, banks should be falling over each
other to hold our money for us.)  The costs are pretty minimal:  under
$100 in fees plus a bunch of annoying time spent waiting in line at City
Hall.  Given that we have monies we would like to start collecting --
more specifically, I have money I want to donate towards the cause
starting immediately -- there really isn't any reason not to do this

There appear to be two routes to take from there:
1. incorporate as a California LLC, a for-profit entity.
2. incorporate as a California non-profit corporation.
  2a. Shoot for 501(c)3 status.
  2b. operate as a "fraternal organization" akin to the Shriners.
      (this is managed under other sections of 501(c).)

I've considered and dismissed the following possibilities:
 - a different for-profit organization (C corp, S corp, partnership)
   (the llc is specifically tailored to the for-profit version of what
   we're trying to do here; if we can't go nonprofit, LLC is the really
   obvious choice.)
 - incorporating in a different state
   (several people have recommended against this.  There are papers and
   fees associated with being an out-of-state corp operating in
   california, plus two sets of rules to deal with.)

It is possible (though it may be somewhat expensive, say maybe $4k in
legal costs) to start out as an LLC and transition to a non-profit.

Both LLC and nonprofit have expenses associated with them; it looks like
paperwork and fees are going to cost us a minimum of $1k per year.


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