Forum OpenACS Q&A: Setting up an OpenACS Foundation
They have suggested setting up as a Chapter 180 corporation in Massachusetts but they need an OK from us generally to proceed and if they get that then we need to make some more decisions; namely: choosing officers, a board, and establishing bylaws.
We discussed this generally at last week's OCT meeting and the consensus was that getting to the point where we have a 501c3 (US tax exempt charity) is not controversial, although Robert Mello suggested investigating SPI as an umbrella organization rather than setting up our own.
And to preempt possible controversy that this will somehow change how OpenACS is currently administered: there is no intent to have the foundation take a role in technical governance, the OCT would stay the same with the same set of responsibilities and the same election mechanisms with no oversight from the foundation. The foundation might end up owning the servers, the domain name, and so on, but that would only happen over time and not without some discussion in the community.
The immediate goal is to get things set up in an orderly fashion without spending too much money doing so, and so we may want to defer some things that can be easily or cheaply changed later.
I think our ultimate goals are to have an entity that is easy to administer, is easy to achieve 501(c)(3) status with, and has its governance structured in such a way that the OpenACS community's consensus is reflected and it is not subject to being hijacked or sabotaged by the board in opposition to the community's wishes. We will need to spend some time coming up with bylaws and setting up the governance so that the foundation does really achieve those goals we as a community might set for it.
So what now?
- If you want to object to this, now is the time
- If you want to help figure out what other open source foundations do and what their bylaws are, step forward
- If you just want to know more about the motivations for doing this just ask...
It would also be easier I think for a group like e-lane or the dotLRN consortium to fund something like an upgrade of openacs.org if the foundation existed (though perhaps it would be just as easy for them to fund that directly).
In the US, the tax law states that any nonprofit that operates (ie competes) in for-profit markets may be taxed. When a nonprofit is subject to taxation, it cannot claim expenses on items that are not directly related to the for-profit operations (overhead, marketing etc), whereas for-profit companies can. The result is that a non-profit organizaiton can end up paying much more in taxes than a for-profit company. The worse part, I believe, is that much of this is subject to the interpretation of government tax agents, ie there *would* be additional legal representation costs to support an alternate view.
In this pro-corporate climate, a US non-profit is not suitable for openacs endeavors. By its tax-exempt definition, it could not work with any for-profit company or have its tools compete where significant revenue is at stake .
Consider starting a nonprofit where open source projects have been historically welcomed by regulatory bodies such as governments. Or.. consider creating a new kind of triple-point socially responsible for-profit venture.
...a US non-profit is not suitable for openacs endeavors. By its tax-exempt definition, it could not work with any for-profit company or have its tools compete where significant revenue is at stake .I think that is pretty clearly false. There are things that we (the community) want to do that would not be permissible within a non-profit but we are not going to try to do them within a non-profit. There are clearly quite a few things that we can do with a non-profit we could not otherwise do and I think those things have a value that exceeds the risk and costs associated with establishing a foundation. You also seem to have gotten the idea that setting up a foundation somehow changes the legal status of the code -- it does not, and any individuals or companies doing paid work involving OpenACS code can continue to do so with no consequence or additional risk.
It might be useful to consider the justifications arrived at by other open-source projects. Here is what they say in the ASF FAQ:
Why was the Apache Software Foundation created?Here is what the Plone foundation FAQ says:
The Foundation was formed primarily to
- provide a foundation for open, collaborative software development projects by supplying hardware, communication, and business infrastructure;
- create an independent legal entity to which companies and individuals can donate resources and be assured that those resources will be used for the public benefit;
- provide a means for individual volunteers to be sheltered from legal suits directed at the Foundation's projects; and,
- protect the 'Apache' brand, as applied to its software products, from being abused by other organizations.
Why does The Plone Project need a Foundation?
Plone is reaching critical mass, with enterprise implementations and worldwide usage. The Foundation will be able to speak for Plone, and provide strong and consistent advocacy for both the project and the community. The Plone Foundation will also help ensure a level playing field, to preserve what is good about Plone as new participants arrive.
You could look for similiar statements from the Mozilla foundation, the Jabber Software Foundation, the Software in the Public Interest (umbrella for debian), the Python Software Foundation, the FSF, and many more.
I think it's quite telling that it is hard to find a well established open source project without an affiliated foundation. You can get all tinfoil hat about the US legal environment but the truth is, that's all the more reason to have a foundation. It *is* a corporation and can mitigate the kinds of risk you allude to with your comment about "attack[s] by for-profit companies".
As for setting up in a different country, yeah, that might be useful as well, but since no one is volunteering to pay for it, it's not going to happen near term.
First, I realize my previous message was terse. I am sorry for that. I should have waited until I could give it my full attention, but alas, I was heading out the door and just had to opine! =)
1. a tax-exempt nonprofit *is* at risk of Unrelated Business Income Tax (UBIT) if it engages in "substantial" for-profit activity. IRS determination is largely on a case by case basis ie. subject to irs agent interpretation. The nonprofit is responsible for UBIT.
2. An IRS auditer may not be knowledgeable about open source, thereby viewing nonprofit's behavior as UB if the nonprofit agents include commercial entities and/or their agents.
3. UBIT can be much more than for-profit corporations pay in taxes without putting out the effort to maintain tax-exempt status, because nonprofits cannot declare expenses that are not directly attributable to the UB activity.
4. Cost of fighting a UBIT determination could be expensive.
5. the statement "There are things that we (the community) want to do that would not be permissible within a non-profit but we are not going to try to do them within a non-profit." is consistent with "..a US non-profit is not suitable for [all] openacs endeavors".
6. "There are clearly quite a few things that we can do with a non-profit we could not otherwise do" is also consistent.
7. Setting up a foundation does not change the legal status of the code.
8. You write:
"it's quite telling that it is hard to find a well established open source project without an affiliated foundation".
Not really.. aolserver is opensource code managed by for-profit AOL. tcl/tk is managed by forprofit activestate (with some copyright held by a nonprofit university). I believe postgresql, inc holds the tm and manages postgres via the The PostgreSQL Global Development Group (project). Let's not forget arsdigita's ACS is now Redhat's CMS.
9. You write:
"a foundation.. *is* a corporation and can mitigate the kinds of risk you allude to with your comment about 'attack[s] by for-profit companies'"
I'm not discussing personal risk. I mean risk to the resources of the foundation not being disbursed as intended. A nonexistant foundation does not create risk. Noone wants to see others' hardwork and dontations in jeopardy. A nonprofit does not have the horizontal market flexibility to compete against something like WebCT without risking UBIT activity. Also, UBIT investigations can be triggered for instance, when an agent from a for-profit company contacts the IRS about a potential UB activity by the foundation..
Consider also that developers who find themselves working under the foundation's umbrella might be restricted from contracting work from commercial entities because of the potential IRS perception that the agent's work might be UB.
Why not leave the openacs project as an informal collaborative venture (of multiple targets), and create a foundation that becomes a collaborative entity among many others?
You also say the risks you are worried about are "...the resources of the foundation not being disbursed as intended." I would argue that absent a foundation those resources wouldn't exist at all, the funds the foundation end up getting it will get by virtue of being a non-profit and without a suitable non-profit vehicle a lot of those funds are not accessible to us.
Consider also that developers who find themselves working under the foundation's umbrella might be restricted from contracting work from commercial entities because of the potential IRS perception that the agent's work might be UB.Restricted how? by a contract the developer signed with the foundation? I don't think for a contractor such a clause would be either present or required, and if by some fluke there was such a clause, then anyone who did not want to obligate themselves to working under that restriction could decline the job.
Why not leave the openacs project as an informal collaborative venture (of multiple targets), and create a foundation that becomes a collaborative entity among many others?That is exactly the plan, there is no intent for the foundation to subsume the OpenACS project or alter it's governance. It's intended to be a tool to facilitate certain aspects of the project that are difficult to manage absent a corporatate sponsor.
Think of the things around OpenACS ownership. Right now, the server is owned by furfly (or maybe "the community" but that is meaningless), the domain name by Ben Adida, and there has been no trademark registration.
I think it's a great thing that individuals have been willing to act as stewards for the community for such things but I think no *one* person should own those things. I would be much happier if the foundation owned the domain name, the physical hardware, and the trademark since it's the only way I can see to say "the community" owns them.
Can you give a cite or a source where UBIT was imposed on an open-source project?
I have been running Linux since about 1994 and have been following open source since then as well, and have never heard of an open source project getting hit with UBIT.
We can't get taxed for accepting grants that are only open to non-profits.
We can get taxed if our 501(3)(c) were to compete with consulting firms, etc, but of course we're not going to do that. We might contract with for-profit firms like Collaboraid if we win grants but then that company, of course, is a tax-paying entity. Non-profits contract with for-profit companies all the time, i.e. lease space, pay for legal and accounting help, etc.
And there's a whole slew of open source non-profits out there that aren't getting attacked by the IRS.
I sat on the board of a reasonably sized ($2M/yr budget) non-profit for 15 years, and have been involved with others, and am fairly knowledgable about them. I see absolutely no risk of the sort Torben's outlining.
People have been talking about this for about two years now. At our Copenhagen meeting, the consensus was "we're not ready". At Heidelberg this spring, consensus was "we should do it this year". While many community members weren't at either meeting, of course, I think those who are considered community leaders were quite well represented.
We're bring this forward, though, to see how the community at large feels about taking this step.
Along with Jeff's short list, it would be convenient to have a legal entity that can, for instance, sign up for booth space at conferences. Right now Talli signs us up for LinuxWorld in his name whenever he thinks about it. We're reaching the stage where it would seem to make sense to be able to do such things in a more organized way rather than be dependent on the good will and timely thinking of individuals.
Jeff, I have nothing against a foundation as you describe it.
"there is no intent for the foundation to subsume the OpenACS project or alter it's governance. It's intended to be a tool to facilitate certain aspects of the project that are difficult to manage absent a corporatate sponsor."
There should be some disclosure (and thus clarity) about the foundations' operational limits. Some of the dotLRN activities discussed elsewhere on this site could subject the foundation to UBIT if a sponsor's benefits from a trade or agreement are valued greater than its contribution (very possible). There might be a need to prohibit commercial entities from participating with nonprofits on development ventures. You can skim some of the related discussion in the federal reg. search terms: internet, web site, hyperlink
Patrick, I cannot cite where UBIT was imposed on an open-source project. My experience with tax-exempt nonprofits operating in areas of building construction and community development (and IRS) suggests that these UBIT concerns are real. A historical lack of an imposed UBIT does not mean open-source development projects are not exempt from UBIT issues --it may just mean that the code has not yet caught up with it.
Has creating a cooperative been considered? How transparent will the foundation be? How will accountability be managed? Has there been any legal consultation?
The only development the foundation - as opposed to our community - would undertake would be development it pays market value for. We don't envision the foundation have developers on staff, etc.
"Has creating a cooperative been considered?"
No, we've only been discussing a charitable corporation.
"How transparent will the foundation be?"
It will be our foundation, so the question is, "how transparent do we want the foundation to be?".
Very transparent is my belief. Debates about transparency will probably center around bylaws designed to make it difficult for the board or for hostile entities to hijack it. As I'm sure you know, there are plenty of real-world cases of foundations being hijacked and then used for purposes contrary to the founder's intent. I am aware personally of one non-profit that was hijacked by its board and the founder fired and kicked out of the organization. He deserved it, IMO, but still, we probably want to make it difficult to hijack our foundation.
Unfortunately safeguards against hijacking are somewhat like security safeguards on a computer network - tend to work against openess and transparency and convenience.
"How will accountability be managed?"
Again, it's our foundation, our bylaws, and up for us as a community to decide.
"Has there been any legal consultation?"
Yes. The dotLRN consortium members to be, if you will, are kindly paying their lawyer to help us with our effort.
Which brings me to a partial answer to Jade's question about overhead ... we can make our foundation a non-membership organization from the legal standpoint yet define an election process for the board which, in effect, sets up criteria for participation which is in practice a membership criteria. An example would be alumni organizations with elected leadership, these are typically not formal membership organizations but only a defined set of people - "the alumni" - can vote.
This means we could skip the formal overhead associated with membership organizations, i.e. having a list of members that is posted in a place of business so many days before elections, having an annual meeting, etc etc. We can have freedom in how we set things up, much as we've had thus far with the OCT election process. We can do things like annual meetings if we want, just aren't required to do Annual Meetings by law.
The formalism that remains, then, involves the need for board meetings, to have certain officers, to file annual reports (don't need audited financials though, to be honest, if you don't have them you close yourself off from a bunch of grant possibilities), etc etc.
The plan is to try to gather consensus on what we'd like our charitable corporation to look like in terms of structure, elections, process, blah blah blah then turn the lawyer loose to draft bylaws and incorporation papers.
We're choosing Massachussets because the lawyer hired to do this work is in Boston and is working on the .LRN consortium stuff, too. MA's as good a place as any to have a bank account, we'll always have community people in MA. Oregon would be my second choice since we have active community members here.
As far as putting together an organization in the EU, doing a US 501(c)(3) doesn't preclude this. The lawyer says that in his experience it is easier for US non-profits to get EU grants than an EU non-profit to get US grants, and for some reason that doesn't surprise me a bit :)
3 cheers for openacs!