[hackerspaces] 501c3 and hackerspaces in the US

Will Bradley bradley.will at gmail.com
Wed Jul 11 07:04:39 CEST 2012

It actually wasn't a partnership relating to 501(c)3, but just a
partnership in general. I can't go into much more detail without airing
dirty laundry, but the take-away is basically what I said earlier; make
sure their goals align with your own, there's no unacceptable/hidden
strings attached, and don't take silence as an acceptable answer. If
someone isn't willing to put something down in writing, that's a red flag.

On Mon, Jul 9, 2012 at 6:47 PM, James Carlson <james at schoolfactory.org>wrote:

> 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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