Re: Legalities

[Dan York <dyork@linuxcare.com>]

David, Guyhelm & company,

(Just getting caught up on email after vacation and travel...)

> > Going non profit seems the easiest way.
> >
> This needs to be well thought out.  

Yes, this is a *huge* issue that needs to be thought through. The
existing corporate laws and structures don't exactly work well for
the looser, informal, amorphous manner in which most open source
projects operate.

> Would it be a membership
> organization with one vote per member?  A problem is that in many
> organizations only a tiny percentage of the members vote and this
> leaves the way open to a hostile takeover.

The larger issue is how do you define the "membership". There has to
be some relatively-objective way to measure *who* is a member. It can't
just be "anyone who is on the mailing list". When forming a nonprofit,
you usually must declare in the organization by-laws the specific method
by which one becomes a member of the organization.

I've been involved directly with the formation of LPI as a nonprofit,
and been a minor participant (reading and a few comments) on the bylaws
for Linux International and also for the Free Standards Group (parent of
the LSB).  With LI, membership was easy as companies must *pay* to be
members of LI.  It is very easy to define who is a member.  With both
LPI and FSG/LSB, it is *extremely* difficult to define who is a member.
As a result, neither of those organizations are currently set up as
membership-based organizations.

(Another example is USENIX which is, in fact, a complete membership
organization that accepts individual members, but also provides services
such as a magazine, discounts on services/conferences, etc., etc.)

> Another form of organization is to have a dedicated board of directors
> that is self-perpetuating. 

Yes, this is more along the lines of how the vast majority of nonprofit
"foundations" are set up. It is up to the current Board to appoint their
successors.

Given that neither LPI or FSG/LSB could figure out any easy means of 
saying who was a "member", both organizations have adopted the 
self-appointed board model.  (For those who wish the gory details 
about LPI, our by-laws are online at http://www.lpi.org/a-legal.html
Note that LPI incorporated in Canada, and so our by-laws are slightly
different than those of typical U.S. nonprofit organizations.)

One other note - there are different types of nonprofit entities, too.
Many nonprofits are organized as "tax-exempt" charities (referred to
in the US as '501(c)(3) organizations' after the section of the US
tax code). Contributions made to a 501(c)(3) are tax-deductible (in the
US) as charitable donations.  The down-side of forming a 501(c)(3) is
that it usually takes longer, costs more (in terms of legal fees), and
has more stringent rules regarding expenditures and also reporting.

Other nonprofits are organized merely as "not-for-profit" entitites
(in the US, they typically fall under '501(c)(6)' but there are several
other designations). The down-side is that contributions are NOT 
tax-deductible as charitable donations, although businesses may be able
to deduct the donations in some other category (advertising or fees).
The up-side is that they are easier to form and can pretty much do 
anything with their money and have limited reporting requirements. 
(LPI formed with the Canadian equivalent of this category.)

Linux International is (or was, anyway) considering forming two related
corporate entities - one would be a 501(c)(6)... well... it was actually
some other designation... but the net of it is that it would be a trade
association that could do lobbying and other activities that are NOT
allowed to be done by tax-exempt 501(c)(3) organizations.  LI would 
*also* form a tax-exempt 501(c)(3) that could accept charitable 
contributions and use them to fund appropriate activities.

> There have been a lot of failures of
> non-profits and we need to avoid the mistakes they made.

Most definitely!

Regards,
Dan

-- 
---------------------------------------------------------
Dan York, President, Board of Directors  dan@lpi.org
Linux Professional Institute   http://www.lpi.org/
1-603-264-0129 mobile, 603-268-0691 tel, 603-268-0103 fax
---------------------------------------------------------



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