Report from incorporation research committee

[Bart Cerneels]

On Wed, Jan 7, 2009 at 11:42 PM, Leo Franchi <lfranchi at kde.org> wrote:
> Hi everyone,
>
> As discussed in the IRC meeting a while ago, the 4 of us (Leo, Mark,
> Lydia, Jeff) have been investigating and discussing options for Amarok
> to create a more formal governing structure for the disbursement of
> funds and legal organization. We wish to re-iterate once again that
> this structure is NOT to have any power to make technical decisions
> --- this is an open source project and all technical decisions will
> remain with the community at large.  We have always had a consensus
> system for this, and it has worked fairly well so far...we see no
> reason to change it.
>
> However, some sort of legal structure is useful in the efficient and
> fair distribution of funds (which may be increasing if we partner with
> music stores for example) as well as in the ability to allow tax-
> deductible donations for potential donors. What follows is a summary
> of our findings, including what we think is reasonable and what we
> recommend as a good governing structure for the project.
>
> We recommend that the board be small (but odd-numbered). 5 seems to be
> a good number as that forces a split as well as allows inclusion of a
> broad array of opinions. The board will have to have at least a
> president, a treasurer, and a secretary to take official minutes.
>
> First, the legal options. Then, possible voting structures for the
> Amarok project itself to adopt.
>
> Note that in both of these cases, foreign citizens to the home
> organization could be on the board.  Furthermore, it is possible that
> we could do both U.S. and non-U.S. entities, but we may not want to
> split donations up if we cannot easily transfer them back and forth.
>
> US Options
> ======
> Becoming a non-profit entity in the United States is not a terribly
> complicated procedure, but it may take a little bit of time and a non-
> significant amount of funds.
>
> Furthermore, we have been in contact with the SFLC (Software Freedom
> Law Center, http://www.softwarefreedom.org/) and we basically have two
> options.  Both provide tax-deductible donations from donors in the
> U.S.; they may or may not be tax-deductible for other countries (note
> that our current music stores that we either work with or that want to
> work with us have U.S. presences):
>
> 1) Go under the umbrella of an organization (Software Freedom
> Conservancy [http://conservancy.softwarefreedom.org/] or Software in
> the Public Interest [http://www.spi-inc.org/].  The details of the SFC
> are below:
>     * We lose direct access to our funds. People donate to them with
> our name.
>     * They can provide for us a special paypal button which will
> redirect the funds to them in our name.
>     * They cut checks to us (basically) when give them receipts. 2-4
> week turnaround time.
>     * We make our own decisions about our money.  They interfere only
> if they believe that a request is either illegal or threatens their
> status as a charity organization.
>     * Multiple contacts can be authorized to make requests (which
> provides some redundancy in the case of unforeseen problems).
>     * No setup, instantly available, some (minimal) charges possible.
> VERY convenient.
>     * 5% recommended donations.
>     * NO HASSLE. Free tax-deductible public charity status. Immense
> amount of hours saved on our end.
>
> 2) Do it ourselves, become a registered 501(c)(3) organization (public
> charity).
>     * Manage our own money, donations, expenses, etc.
>     * Much more work on our end, especially to set up, and need to
> file paperwork yearly.
>     * Potentially register trademarks in our name (not sure, needs
> more research).
>     * We need to choose a state to incorporate in, in which at least
> 1 of our members resides ideally.
>     * Cost is $750 if we think we will be receiving more than $10,000.
>     * Yearly filing requirements, certain laws to be aware of when
> distributing money.
>     * Very specific requirements as far as what the funding sources
> can be, what distribution they can have, etc.
>
> German options
> ==========
> Registering to become a German e.V. is not that complicated, it just
> requires a few things:
>     * 7 members to found.
>     * Members voting for by-laws and elect first board at mandatory
> first meeting.
>     * Registration at court.
>     * Costs ~100 EUR.
>     * Yearly meeting required (think e.V. general assembly at Akademy).
>
> This can be done relatively easily it seems, and non-germans can be on
> the board (so would be easy to get everyone involved).
>
> ============
> Recommendation
> ============
>
> As both Tradebit and Magnatune (to take two examples) are incorporated
> in the United States, and given the relative size of the United States
> to Germany, if all other things are equal it would make more sense to
> allow tax-deductible donations from individuals or corporations from
> the United States. This would open us up to more potential funding. It
> seems that if we go with the SFC we basically have a very easy way to
> get these donations, while at the same time not impinging on our
> rights to decide what to do with our funds. Furthermore, this fits
> well with our plans to create a board as outlined above --- the board
> would simply be required to decide how to allocate funding, then the
> predetermined SFC contact (on the board) would request a reimbursement
> for the necessary amount.
>
> It is our preliminary recommendation that the Amarok project choose
> the SFC for managing its funds, while considering an additional
> second, German-based entity.
>

Has it been considered that those 3th parties might find it suspicious
to send the funds to a proxy charity organization like the SFC? I
Realize we are not dealing with paranoid, conservative businesses but
innovative web-entrepreneurs, but still. Perhaps it should be checked
informally with Magnatune, Tradebit and the like.

I'm personally all for the SFC + e.V. idea.

Bart