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Starting a 501(c)(3) nonprofit

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8:18 pm
December 7, 2009


Luke Maurits

Adelaide, Australia

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Post edited 2:38 am – December 8, 2009 by Luke Maurits


Rocket-To-The-Moon said:

So it costs $75 to incorporate in NY and then $200 to file with the IRS.

What are the recurring costs? Just the $200/year for the IRS.


$75 to inc. in NY is correct.  However, that only gets you a filing receipt.  You need to pay $10 for each certified copy of the certificate of incorporation – you can buy as may of these as you want at any time.  I suspect the IRS will require one of these as part of the 501(c)(3) process, so effectively the cost is $85.  EDIT: Although, we coudl always put off getting the certificate until we have raised the rest of the IRS money, so the immediate cost is still $75.

The IRS cost is $300 right now.  In Jan 2010 it will become $400.  Then, later in 2010 when Cyber Assistant comes out, it will drop to $200.  It's not really clear how long it will take us to get that money so we could end up facing any of these prices.

It never ocurred to me that the IRS cost may be recurring.  It makes little sense to me that it would be, but I guess we should look into it.

Anyway, I see we finally have two people in the one state!  It looks like NY is probably going to be the way to go.  There are a few small questions we need to sort out, like whether or not brmj's "part time" status is a problem.  There are contact details for the NY dept. of incorporation at the bottom of this page.  Maybe we could put together a list of our questions and one of our NY members could give them a phonecall, or physically stop by their office, and sort things out?

Main workgroups: Mission Planning, Navigation and Guidance. I do maths, physics, C, Python and Java.

8:43 pm
December 7, 2009


Luke Maurits

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Small NY roadblock.

Basically, NY lets you start a NPC for any one of a few valid reasons.  Some of those valid reasons require you to get permission from other government agencies.  If our reason is "promotion of science, literature, art, history or other department of knowledge; any educational purpose." then we'd need to get a $10 approval from the Department of Education.  This may not be the best reason for us to state, though, I'll have to try to find the complete list.  My intuition is that just building and launching rockets won't count as promotion of science, but if we did go ahead with the suggested idea of having a public education project running as well I think we would definitely run up against this restriction.

Main workgroups: Mission Planning, Navigation and Guidance. I do maths, physics, C, Python and Java.

9:14 pm
December 7, 2009


brmj

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"Certain purposes, such as the establishment or operation of any aged care accommodation or adult care facility, the establishment or operation of a substance or alcohol abuse program, an educational purpose in any way or the promotion of science, literature, art or history requires that the consent or approval of another agency be attached to the Certificate of Incorporation when it is submitted to the Department of State for filing. Please be sure to review Section 404 of the Not-for-Profit Corporation Law to determine whether any consents or approvals are required."

"Department of Education
Office of Counsel
State Education Building, Room 148
Albany, NY 12234
(518) 473-8296


Section 404(d) – promotion of science, literature, art, history or other department of knowledge; any educational purpose.

The Department of Education requires a $10 fee to obtain consent."


There's another $10, probably.


Reading this, the process looks like a beurocratic mess. I don't see what we can do about that, though, so we'll probably just have to deal with it.


Main work groups: Propulsion (booster), Spacecraft Engineering, Computer Systems, Navigation and Guidance (software)

9:27 pm
December 7, 2009


Luke Maurits

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brmj said:

Reading this, the process looks like a beurocratic mess. I don't see what we can do about that, though, so we'll probably just have to deal with it.



Agreed there is nothing we can do about it.  I am really starting to resent just how hard what we're trying to do is.  Our advisor on Reddit seems to think we are seriously understimating how much work will be involved in this, especially with regards to accounting.

I realise there is a need to keep records and stuff to avoid charity fraud, but what we want to do here is so small and simple I feel like it shouldn't be this hard.  There should be a low-cost, low-complexity alternative to fully blown incorporation and 501(c)(3) for small and simple operations like ours.  We're having to jump through the same hoops as large, "proper" non profits who deal with hundreds of thousands of dollars and hold regular meatspace meetings, despite just being a few internet geeks who want to solicit donations to build rockets.  It's frustrating.

Main workgroups: Mission Planning, Navigation and Guidance. I do maths, physics, C, Python and Java.

2:12 am
December 9, 2009


Luke Maurits

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Post edited 8:16 am – December 9, 2009 by Luke Maurits


Okay, I've read through this page again with a view to figuring out exactly what questions we need to ask the NY Department of State before we can move on with incorporation.

1) I am not sure brmj's transient status of NY residency is a problem.  In fact, nothing on there suggests that the incorporator has to live in NY.  We can ask to make sure, though.

2) The only thing I have found that definitely does need to be in NY is this: 

Paragraph Fifth must indicate the county within New York State where the office of the corporation will be located. Enter only the name of a county in New York State. Do not include the street address. In New York City, the borough of Manhattan is in New York County, the borough of Brooklyn is in Kings County and the borough of Staten Island is in Richmond County. Bronx and Queens are boroughs and counties. Please note that such office need not be a place where activities are conducted by the corporation.

What is enough to constitute an office?  Can brmj's dorm room constitute an office?  Note that nowhere on the form do you apparently have to provide the actual street address of this office, merely the county.  This means they obviously don't plan on raiding or inspecting the office in any circumstances.  I don't know what they want this for, or how they even verify your answer.  Perhaps we can simply ask "if we plan on operating purely online and don't really need a physical office, can we just supply the County in which one of the corporation members lives?"/p>

3) The other thing we need to consider is this:

The corporation must designate the Secretary of State as its agent for service of process. Complete Paragraph Seventh by providing an address within the United States to which the Secretary of State may mail a copy of any process received. "Process" means the papers that acquire jurisdiction of the corporation in a legal action. To avoid a default judgment, the corporation should keep the address for service of process current by filing a Certificate of Change or Certificate of Amendment, as appropriate.

Note that this address can be anywhere in the US, not just NY.  It makes sense to me to use a PO box for this.  This means we need to either decide on one of those online mail scanning PO box services, or someone in the US, any state, needs to volunteer to open a PO box nearby their home for this purpose.  I am sure Rocket will be happy to transfer the cost of the service out of our current PayPal donations.  Point of interest: presumably we can't open a PO box in the name "CSTART" until we file (but it would be worthwhile checking this out), so this will have to be in someone's name.  However, I suspect it is easy to ammend this detail later, probably for $10 or so, so we can change it to the name of CSTART later.  Alternatively, we could just put down brmj's or noumena's regular addresses for now and change to a PO box later.

So, to summarise:

  • Somebody needs to ask the NY State Department what restrictions exist on an incorporator's residence in NY.
  • Somebody needs to ask the NY State Department exactly what constitutes an acceptable office for the corporation so we know which County to specify.
  • We need to decide on a mailing address, anywhere in the US, to use as the address that the NY state government will send stuff to if anybody wants to sue us.

Once we have these issues sorted, somebody should talk to the IRS and figure out exactly what wording needs to go in our incorporation form to enable us to get 501(c)(3) status.  Once we know that, we would be in a position to write out a draft form and send it to the Department of Education for approval.  Then we could incorporate, then we could get our 501(c)(3) on.

It's not exactly an easy path, but I think at least now we have the path laid out clearly infront of us.

Gigantic caveat: my discussions on Reddit with a lawyer who knows this part of the law well have been ongoing.  He seems to think that instead of incorporating we should create a Limited Liability Company or a Limited Liability Partnership instead – he has suggested this after I provided him with a rough description of how we want our legal entity to operate.  Right now I know very little about LLCs or LLPs but I am going to read up on them to see if they would be more appropriate.  We may want to consider those options instead.

That said, there is no harm in people asking those questions of the NY state people now so that if the LLC or LLP options turn out to be no good we still have momentum in our original direction, so if you were thinking of taking care of that, feel free to still do so.  The people to ask questions about this are:

Contacting the Division of Corporations

If you require technical advice or have any questions regarding the filing of your Certificate of Incorporation, please contact the Department of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231. The telephone number of the Division of Corporations is (518) 473-2492. The Department of State’s website address is http://www.dos.state.ny.us. The email address is [email protected].

Main workgroups: Mission Planning, Navigation and Guidance. I do maths, physics, C, Python and Java.

6:51 am
December 9, 2009


Rizwan

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Incorporating as an LLC or LLP wont get us the benefit of donations being tax deductible. Apart from that I guess we wont be distinguishable as a non-profit organization either

10:32 pm
December 13, 2009


Luke Maurits

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I have sent the following email the relevant NY Department of State email address:

To whom it may concern,

I am involved with a small, internet-based movement which is
considering incorporation as a non-stock corporation in the state of
New York.  We have a few relatively simple questions about the process,
which follow in this email.  If we could be provided with answers to
these questions, or directions to readily accessible resources which
plainly answer these questions, this would be very much appreciated.

Our questions are:

1) Are there any restrictions placed on whom may act as an incorporator
in the state of NY?  Do they need to be a US citizen?  Do they need to
be a resident on NY state?  Is a US citizen who is resident in NY
during college semesters but whom returns home out of state
during vacation periods eligible to act as an incorporator?

2) We are aware that "Not-for-Profit Corporation Law requires that the
name of the corporation contain one of the following words:
Incorporated, Corporation or Limited, or one of the following
abbreviations: Inc., Corp. or Ltd.".  Is their any semantic importance
attached to these various terms or is it entirely an issue of personal
taste?  If there is semantic importance, could you kindly inform us of
the meaning of the various terms or point us to an online resource
explaining the meanings?

3) With regards to the requirement that "Paragraph Fifth must indicate
the county within New York State where the office of the corporation
will be located": what precisely makes a location eligible to be
considered an office of the corporation?  We expect our operations to
be purely online at the early stages of our operation, which may last
for some time (i.e. years).  We plan to raise funds by accepting
donations and selling products online.  Our meetings will be facilitated
by teleconferencing and similar technologies.  Our activities will be
the provision of information and communication facilities online and
the distribution of collected money to external groups and
individuals through processes which occur online.  In light of this,
what would be considered an appropriate office?  We do have several
members of our group, who would become members of the corporation, who
are residents of NY state.  Is a simple permanent residence of an
organization member who is active in online activities an adequate
office?  Are there requirements that certain documents or records be
retained at our NY office?

4) Is there any limitation on the amount of time which may pass between
the filing of the certificate of incorporation and the first meeting of
the corporation, whereat the initial directors decide upon permanent
director positions and bylaws, etc?

Thank you very much in advance for your anticipated
assistance.

Regards,
Luke Maurits

When/if I receive a response, I will post it here.

If we receive a helpful response to this email and are allowed to see the Open Luna Foundation's certificate of incorporation (to see a known-good example use of the IRS's magic words for 501(c)(3) eligibility) then there should be no further obstacles to us incorporating in the very near future.

Main workgroups: Mission Planning, Navigation and Guidance. I do maths, physics, C, Python and Java.

2:06 am
December 14, 2009


Rizwan

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Before incorporating we should also look into the ITAR laws

http://en.wikipedia.org/wiki/I…..egulations

http://www.pmddtc.state.gov/re…../itar.html


Since we are having members from all over the world and we want our designs to be open source for everyone to see. These laws could pose a problem.

9:37 am
December 14, 2009


Rocket-To-The-Moon

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Post edited 3:38 pm – December 14, 2009 by Rocket-To-The-Moon


I am sure Rocket will be happy to transfer the cost of the service out of our current PayPal donations.


Just send me a PM to get my attention.

Swamped with work & school at the moment. Main Workgroups: Propulsion & Spacecraft Engineering

2:31 am
December 17, 2009


noumena

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My winter break is coming up. If you guys want to incoporate in New York I would have the time to do all of the footwork.

2:56 am
December 17, 2009


brmj

Rochester, New York, United States

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Rizwan said:

Before incorporating we should also look into the ITAR laws

http://en.wikipedia.org/wiki/I…..egulations

http://www.pmddtc.state.gov/re…../itar.html


Since we are having members from all over the world and we want our designs to be open source for everyone to see. These laws could pose a problem.


I agree. We need to figure out how big a problem these will be and how best to mitigate that problem. It might make sense to base the orginization in another country, of have a seperate forign branch, and confine US members to working on things that they can legally share with the rest of the world. That would really suck if ITAR is as ridiculous as I've been led to believe.

What does everyone think we should do?

Main work groups: Propulsion (booster), Spacecraft Engineering, Computer Systems, Navigation and Guidance (software)

2:57 am
December 17, 2009


Luke Maurits

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I appreciate that offer very much, noumena.  I still haven't got a reply to my email (not sure how long I should realistically expect to have to wait).  Since you are in NY, if you could phone the Department of State people (or physically visit their office if it's not too far away from where you live) and ask the same questions that I put in my email and report back to us with their answers, it would be a huge help.  Once we know those answers we can start actually preparing a draft certificate.  Once that is done, you and/or brmj could act as our incorporators and we could get things started.

Now is probably a good time for people to start thinking about whether or not they can take on official roles in the organization.  Secretary and Treasurer in particular might be demanding jobs – there will be laws dictating certain records which have to be kept or we could get in trouble, so whoever takes these positions needs to be sure they have the time to take care of this.  Since we won't be able to afford to pay people to do this, at least not in the early stages, it will take a fairly dedicated person to do this.

Main workgroups: Mission Planning, Navigation and Guidance. I do maths, physics, C, Python and Java.

6:10 pm
December 18, 2009


Luke Maurits

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Post edited 12:21 am – December 19, 2009 by Luke Maurits


Well, I finally received a reply from the NY DOS – an extremely terse and unhelpful one!

This is in response to your recent inquiry.

An incorporator must be an individual at least 18 years old.

The corporate indicator requirement is your personal choice.

The location of the office of the corporation must be set forth in terms of a county in New York State.  Please note a physical presence is not required as Section 102(a)(11) of the Not-for-Profit Corporation Law provides that such office need not be a place where business activities are conducted by the corporation.  This designation fixes venue.  

You are respectfully referred to Section 405 of the Not-for-Profit Corporation Law regarding the organizational meeting.

Sincerely,

Division of Corporations

I'm still not really clear on question 3 at all, with regards to what country we put down for our office.  If a physical presence is not required then we can just pick a county at random and use that?  What is the point of requiring us to answer a question like this if its answer is completely meaningless?  What does "This designation fixes venue" mean?

I might have to actually read section 102(a)(11) to get some better idea as to what this about.

EDIT: NY Not-for-Profit Corporation Law is readable online here. Section 102(a)(11) is not at all helpful:

"Office of a corporation" means the office the location of which
is stated in the certificate of incorporation of a domestic corporation,
or in the application for authority of a foreign corporation or an
amendment thereof. Such office need not be a place where activities are
conducted by such corporation.

EDIT2: I've read section 405 of the law.  A shorter answer to my question would have been "No"/p>

Main workgroups: Mission Planning, Navigation and Guidance. I do maths, physics, C, Python and Java.

9:20 pm
December 29, 2009


Luke Maurits

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As Rocket recently pointed out in another thread, we've received another significant donation and are now up to $185 in total.

We have really let the momentum on incorporation die down a bit lately.  In a sense this is fair enough becase we've all been busy with the holiday period and whatnot, but we should probably start trying to get back on track soon, in fairness to the people who have so generously helped to finance our efforts.

It seems to me now that anybody can act as our incorporator, whether they live in NY or not.  It will just involve sending some forms and a cheque to the NY DOS.

The only question we would still like more information on before preparing those forms is this stupid office county question.  I tried asking about this via email and got a pretty unhelpful response, I think our best bet would be for somebody to phone them (anybody in the US could do this at a reasonable cost, I imagine, if the cost of the phonecall is all that would be holding someone back, I am sure we can arrange to reimburse them from our donation funds) or to visit them face to face (this would only be feasible for a NY resident who was near to their offices on Washington Avenue, Albany, does anybody live near there?).  This way we can keep asking clarifying questions to turn their stock response gibberish into something meaningful.

In addition to that information we need an address that NY state can send legal papers etc. to.  This can be anywhere in the US.  Ideally we should get a PO Box but we can change this address at any stage so we can start off just using somebody's personal address for now.

Also note that "Not-for-Profit Corporation Law requires that the name of the corporation contain one of the following words: Incorporated, Corporation or Limited, or one of the following abbreviations: Inc., Corp. or Ltd.". We also need to decide as a group whether or not we want to incorporate as:

  • Collaborative Space Travel and Research Team Incorporated
  • Collaborative Space Travel and Research Team Corporation
  • Collaborative Space Travel and Research Team Limited
  • Collaborative Space Travel and Research Team Inc.
  • Collaborative Space Travel and Research Team Corp.
  • Collaborative Space Travel and Research Team Ltd.

This isn't a huge decision because of course we'll continue to just refer to ourselves as CSTART in every capacity except formal legal ones – the bank account will probably have to be in one of the names above, but the website, pamphlets, merchandise etc. can all refer simply to CSTART.

For my part, I think that we should avoid the "Corporation" or "Corp" options because "Team Corporation" makes no real sense.  The other options are at least grammatical.  I don't have a strong preference between Inc. and Ltd. and will support whatever other people think is best.

Main workgroups: Mission Planning, Navigation and Guidance. I do maths, physics, C, Python and Java.

6:32 am
December 30, 2009


Rizwan

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Another suggestion could be using the abbreviation, for example.

CSTART Ltd.

CSTART Corp.

CSTART Inc.


Anybody have suggestions on the pros and cons of this?

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