[hackerspaces] 501c3 and hackerspaces in the US

James Carlson james at schoolfactory.org
Tue Jul 10 03:47:48 CEST 2012

Awesome insights, Will.

As to the question about members starting and/or running for-profit
businesses from the space, this again should not run counter to the 501c3
rules. (It may run counter to the culture or values of the space, but
that's another matter for the community to decide.)

Many business incubators are themselves non-profit organizations, because
they consider their mission to be an educational one related to supporting
new business formation. At Bucketworks <http://www.bucketworks.org> in
Milwaukee, many of our members have created/are creating 'jobs' for
themselves that more fully express their creative and intellectual
passions. Sometimes these become startup businesses that end up graduating
out of our space; sometimes they stay because the job is really just a part
of the lifestyle.

Since we are fulfilling our mission by supporting these activities,
offering these members access at lower than market rates for the value, and
not taking a cut of their success, the IRS policies support the activity.

A key underlying principle of 501c3ness is 'making financial information as
transparent as possible'--this helps board members and even members of the
community spot problems before they become problems.

You spoke about a bad experience hitching with another 501c3. The School
Factory sponsors 18 spaces scattered around the country, and we're always
trying to improve how/what we do (since we also manage and run a space we
are very connected to this and want to do it well.) Without breaking
privacies and such, what can you share about your experience?

On Mon, Jul 9, 2012 at 5:44 PM, Will Bradley <bradley.will at gmail.com> wrote:

> This is a great thread and mirrors HeatSync Labs' experience getting its
> 501(c)3. We're an educational nonprofit, and memberships basically pay for
> the rent and tools. We keep our doors open to the public and hold classes
> regularly. If we get much more money, I'm sure we'd expand our
> teaching/outreach.
> I'm not a lawyer, but my argument is, the space itself and tools within
> it, when combined with a bit of instruction, are themselves providing
> self-directed education. Without the space or tools, people like us
> wouldn't be able to learn. They're learning resources. This is an important
> distinction to make, because a good "charity" spends a healthy percentage
> of its money on fulfilling its charitable mission. Our mission IS to
> provide space and tools, so we're good as long as we aren't spending
> thousands on parties or "overhead" expenses.
> Comments:
> Our local hackerspace is looking at becoming a 501c3, independent of
> any other entity.
>   - I believe it's important to be somewhat independent. If you choose to
> hitch your wagon to another entity, do all you can to make sure their
> vision is aligned with yours and that there are no hidden or undesirable
> strings attached. We've been bitten by this before.
> Is your hackerspace a 501c3? How does it affect the day to day
> operations of your space? Are there limitations on the use of donated
> versus non-donated funds? (Donations vs dues and class fees, etc)?
>    - We are. It doesn't affect too much, although if members stopped
> opening the doors to the public or being helpful to newbies, we'd have to
> step in and adjust to make sure we were staying true to our mission. We
> can't afford to be insular. Due to our nonprofit status, many members have
> a slight aversion to using the space for profitmaking activities. This is
> fine, except that it can prevent inventions from becoming successful
> businesses. It takes some effort to maintain a friendly atmosphere for
> more-than-hobbyists.
>    - If we have a big donor, we frequently ignore that money for budgeting
> purposes since it could go away at any time. When it comes time for a large
> tool purchase or emergency, then that money is there, but we don't count on
> it. We aim to be (and are) self-sufficient on memberships alone. I call it
> the "gym model" -- there's a certain ratio of dollars to members to daily
> activity and you're aiming for a sweet spot.
>    - Class fees are intended to compensate the instructor and go towards
> machine maintenance, but I'm not aware of strict accounting for it. Simply,
> the more people trained on a machine, the more people likely to use it. But
> we wouldn't want to deny a machine maintenance because of insufficient
> class fees.
> One of the arguments being put forth is that members must not work on
> individual projects, because that would be a benefit to the member
> versus the public, and somehow violate the 501c3 rules.
>   - Others have described this issue more fully, but we were never made
> aware of this argument during our 501(c)3 application. The underlying
> principle is, make sure a good percentage of your expenditures can be
> labeled as directly benefiting peoples' education, and all expenditures or
> savings must be allocated somehow. If you save up a bunch of money, it's
> ok, just explain what you're saving it for. (Rainy day fund, big tool
> purchase, etc.)
> One gotcha we were made aware of is selling things or competing with
> business. For example if you sell Arduinos, make sure they've got your logo
> on them, are ideally part of an "educational kit", and are not priced
> competitively with Radio Shack or Adafruit. You don't need to charge sales
> tax on items you sell; you can't use that advantage to compete with anyone.
> If you sell t-shirts, make sure they're promotional/fundraising gear with
> your logo on them, and you're not competing with the t-shirt business next
> door, or Threadless, or Walmart. The good news is, as a nonprofit people
> will tend to be ok with paying a bit more than retail.
> The example we were given was, the Red Cross can sell first aid kits, but
> they can't be priced or marketed competitively with Johnson & Johnson first
> aid kits; ideally, they should be obviously-promotional items for the Red
> Cross' humanitarian mission. OR, the Red Cross could give them away to
> needy people as part of their humanitarian mission. (In fact this was the
> subject of a landmark lawsuit both for trademark and nonprofit law:
> http://en.wikipedia.org/wiki/Emblems_of_the_Red_Cross#Johnson_.26_Johnson_v._American_Red_Cross
> )
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