Starting a 501(c)(3) nonprofit | Legal issues | Forum

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?

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?".

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 corporations@dos.state.ny.us.

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.

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".

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?

tnylund said:

I know I'm a little late to the party, but I have an idea that might be of interest.

You are, in fact, just in time!  Now that preparations for SpaceUp are well and truly over, I think we need to make working on the 501(c)(3) goal an absolute priority.  We have slacked off on this for too long.  It sounds like the service your employer offers would be a great help to us later on.

Directors: we need to figure out our next course of action on this front.  Some of the advcie we got from people at SpaceUp was in favour of incorporating outside of the US.  We need to decide if we want to do this or not.  If we do, we need to start looking into candidate countries.  If we want to stick to the US, we need to decide if we still want to incorporate in NY (we now have yet another member from there!).  If we do still want to go with NY, then the next steps are very clearly outlined in this thread.  Who is willing to take care of them?

rpulkrabek said:

I would really like to read up more on ITAR, but my current feeling is that it is too restricting to be able to become a non-profit with in the U.S.

After reading this reddit comment, I am a bit hesitant to what we would be able to do. We would really need to be careful of what is submitted. I really want to read more on what is allowed and what isn't before I submit anything else.

This is incredibly disappointing. I understand that it is in place to protect the country, but at the same time, it really hinders advancements in space travel/research. 

I have done some preliminary reading of the exact law and it seems to me that ITAR is not half as scary as people think (but it's still somewhati scary).

A lot of worries seem to be utter FUD.  For instance, the Reddit comment linked to above says "satellites are considered munitions by the US government".  That is a blatant exageration.  The definition of "spacecraft" for the purposes of ITAR is this (big wall of text, sorry):

(a) Spacecraft and associated hardware, including ground support equipment, specifically designed or modified for military use.

   (b)(1) [Reserved]

   (2) Communications satellites (excluding ground stations and their associated equipment and technical data not enumerated elsewhere in § 121.1 of this subchapter; for controls on such ground stations, see the Commerce Control List) with any of the following characteristics:

   (i) Anti-jam capability. Antennas and/or antenna systems with ability to respond to incoming interference by adaptively reducing antenna gain in the direction of the interference.

   (ii) Antennas:

   (A). With aperture (overall dimension of the radiating portions of the antenna) greater than 30 feet; or

   (B). With sidelobes less than or equal to -35dB; or

   (C). Designed, modified, or configured to provide coverage area on the surface of the earth less than 200 nm in diameter, where "coverage area" is defined as that area on the surface of the earth that is illuminated by the main beam width of the antenna (which is the angular distance between half power points of the beam).

   (iii) Designed, modified or configured for intersatellite data relay links that do not involve a ground relay terminal ("cross-links").

   (iv) Spaceborne baseband processing equipment that uses any technique other than frequency translation which can be changed several times a day on a channel by channel basis among previously assigned fixed frequencies.

   (v) Employing any of the cryptographic items controlled under Category XIII (b) of this subchapter.

   (vi) Employing radiation-hardened devices controlled elsewhere in § 121.1 that are not "embedded in the satellite in such a way as to deny physical access. (Here "embedded" means that the device either cannot feasibly be removed from the satellite or be used for other purposes.)

   (vii) Having propulsion systems which permit acceleration of the satellite on-orbit (i.e., after mission orbit injection) at rates greater than 0.1g.

   (viii) Having attitude control and determination systems designed to provide spacecraft pointing determination and control better than 0.02 degrees azimuth and elevation.

   (ix) Having orbit transfer engines ("kick-motors") which remain permanently with the spacecraft and are capable of being restarted after achievement of mission orbit and providing acceleration greater than 1g. (Orbit transfer engines which are not designed, built, and shipped as an integral part of the satellite are controlled under Category IV of this subchapter.)

   (c) Global Positioning System (GPS) receiving equipment specifically designed, modified or configured for military use; or GPS receiving equipment with any of the following characteristics:

   (1) Designed for encryption or decryption (e.g., Y-Code) of GPS precise positioning service (PPS) signals;

   (2) Designed for producing navigation results above 60,000 feet altitude and at 1,000 knots velocity or greater;

   (3) Specifically designed or modified for use with a null steering antenna or including a null steering antenna designed to reduce or avoid jamming signals;

   (4) Designed or modified for use with unmanned air vehicle systems capable of delivering at least a 500 kg payload to a range of at least 300 km.

    Note: GPS receivers designed or modified for use with military unmanned air vehicle systems with less capability are considered to be specifically designed, modified or configured for military use and therefore covered under this subparagraph.

    Any GPS equipment not meeting this definition is subject to the jurisdiction of the Department of Commerce (DOC). Manufacturers or exporters of equipment under DOC jurisdiction are advised that the U.S. Government does not assure the availability of the GPS P-Code for civil navigation. It is the policy of the Department of Defense (DOD) that GPS receivers using P-Code without clarification as to whether or not those receivers were designed or modified to use Y-Code will be presumed to be Y-Code capable and covered under this subparagraph. The DOD policy further requires that a notice be attached to all P-Code receivers presented for export. The notice must state the following: "ADVISORY NOTICE: This receiver uses the GPS P-Code signal, which by U.S. policy, may be switched off without notice."

   (d) Components, parts, accessories, attachments, and associated equipment (including ground support equipment) specifically designed, modified or configure for the articles in paragraphs (a) through (c) of this category, as well as for any satellites under the export licensing jurisdiction of the Department of Commerce, except as noted below.

Explanatory Note

    This language is not intended to preclude a license application of a complete satellite that is under the jurisdiction of the Department of Commerce from including in that license application any directly associated components, parts, accessories, attachments and associated equipment (including ground support equipment) unless such items are specifically identified for control in paragraph (a) or (b) of this category or any other category of § 121.1 of this subchapter. It is understood that spares, replacement parts, ground support and test equipment, payload adapter/interface hardware, etc. are typically provided as part of a satellite launch campaign; however, such items are only exempt from USML licensing when their intended use is directly related to supporting the Commerce-licensed satellite launch campaign. Once the satellite has been successfully launched, it is understood that such items remaining unlaunched will be returned to the United States.

   (e) Technical data (as defined in § 120.21 of this subchapter) and defense services (as defined in § 120.8 of this subchapter) directly related to the defense articles enumerated in paragraphs (a) through (d) of this category. (See § 125.4 of this subchapter for exceptions.) Technical data directly related to the manufacture or production of any defense articles enumerated elsewhere in this category that are designated as Significant Military Equipment (SME) shall itself be designated SME. In addition, detailed design, development, production or manufacturing data for all spacecraft systems and specifically designed or modified components thereof, regardless of which U.S. Government agency has jurisdiction for export of the hardware. (See § 125.4 of this subchapter for exceptions.) This restriction does not include that level of technical data (including marketing data) necessary and reasonable for a purchaser to have assurance that a U.S.-built item intended to operate in space has been designed, manufactured and tested in conformance with specified contract requirements (e.g., operational performance, reliability, lifetime, product quality, or delivery expectations) and data necessary to evaluate in-orbit anomalies and to operate and maintain associated ground equipment.

So what is restricted is not "satellites", it is a very specific subset of satellites.  That subset includes satellites specifically designed for military use (our Social Contract prohibits this) or which contain "scary military stuff" – high precision, encrypted, un-jammable communictions, for instance, gigantic antennae or very high precision navigation equipment.  Now, the navigation equipment restrictions may be relevant to CLLARE, and the stuff about onboard propulsion systems is definitely relevant to CLLARE.  But I am pretty sure a basic CubeSat will not fall under any of the above restrictions.  It does not need high precision navigation or high precision radio footprints.  It should be fine.

Now, I am a little worried about the "1(b) [Reserved]" above and what it means.  That needs looking into, but I doubt it will cover CubeSats.  Perhaps it refers to manned spacecraft?

Now, as for rocket related things, what is restricted is basically this:

    Complete rocket systems (including ballistic missile systems, space launch vehicles, and sounding rockets (see § 121.1, Cat. IV(a) and (b)) and unmanned air vehicle systems (including cruise missile systems see § 121.1, Cat. VIII (a), target drones and reconnaisance drones (see § 121.1, Cat. VIII (a)) capable of delivering at least a 500 kg payload to a range of at least 300 km.

The emphasis at the end is mine, and is extremely important.  Rockets which cannot deliver a 500 kg payload further than 300 km are not restricted by ITAR.  OHKLA absolutely meets that criteria.  500 kg is many times more than the entire fuelled mass of an OHKLA rocket!

Now, also covered are certain subsystems which could be used in a complete system that would be restricted under the above definition, e.g. "Heat shields and components thereof fabricated of ceramic or ablative materials" which are usable in a complete system like those defined above are also restricted.  We may have trouble with some of those subsystems.  But that just means we can't make that part of the project open source.  The project as a whole is not inherrently in ITAR danger.

Note that our original plan to build a large, clustered hybrid LV to do CLLARE launches with certainly was in ITAR danger.  Of course, ITAR does not apply to "information related to general scientific, mathematical or engineering principles that is commonly taught in schools and colleges or information that is (legitimately) in the public domain", and I would argue that our discussion of that plan was at this level of detail, so technically ITAR did not apply to it.  The US federal government may, of course, disagree, and who would we be to stop them, but the cost to reward ratio from their perspective of taking CSTART down because of that pathetic little body of work that we have openly given up on is very low indeed, so I wouldn't lose sleep over it.

Basically, I think ITAR is going to be a pain which may force us to keep some of the subsystems of some our projects non-open source.  It is not going to make any of our projects completely impossible.  We have not already violated it under any reasonable interpretation.

Of course, even that is more restriction than we would like.  But I'm not sure how much we can do about it.  Let's say we incorporate in (and locate our servers in) Australia instead, where there is no ITAR.  Now we can open source information about whatever we want.  But individual US citizens who post to forums on the Australian servers are technically exporting their post from the US, so if it talks about anything ITAR restricted, that citizen could be punished (CSTART itself could not be).  This results in a situation where brmj, RocketToTheMoon and rpulkrabek (assuming you're still a US citizen) can only work on certain parts of the projects.  Because learning which parts they can and cannot work on is going to be hard and up for debate, and because the risks involved in getting it wrong are very large, many Americans simply will not bother.  It's not much of a better situation, especially when you combine it with Americans not being able to make tax free donations.

Of course, IANAL, all of the above is based on my common sense interpretation of the actual laws.